Monetary conditions tightened somewhat and became more disinflationary in December 2022. This happened while simultaneously REER forming at a level above its potential and reducing the negative gap in the real interest rate. The value of the RMC Index is in the zone of restraining monetary conditions and close to the neutral zone border.
The REER value for the period under review remained at the level of November 2022, which was facilitated by the continued favourable terms of trade. The trend of the REER strengthening observed in the last 5 months of 2022 should limit the price competitiveness of Kazakhstan producers in foreign markets. However, the periodic shortage in certain commodity markets due to geopolitical tensions reduces the possible negative effect on Kazakhstan’s export revenue. A slight reduction of the positive gap in the exchange rate component is a positive trend since this fact corresponds to a gradual correction of the REER value from its significant overestimation to a more fundamentally determined equilibrium value.
At the same time, the interest component gap was closer to 0, and the real interest rate was less negative. This is due to the base rate increase of 75 bps in early December and, contrary to the shock measures taken by the regulator in November 2022, a deterioration in inflation expectations, as well as an increasing excess of tenge liquidity by fiscal measures to support economic activity.
Read more in the paper
Monthly inflation overview: causes, elements, forecasts