AUG. 3 2012, 2012 (The Conway Bulletin) – Kazakhstan’s interest rate cut mirrors moves by other large emerging market economies
>>>>The Kazakh Central Bank finally came through on a promise made in June and cut interest rates to 5.5% (Aug. 2).
The move, which comes into effect on Aug. 6, reduces Kazakhstan’s interest rate to its lowest ever level. In 2008, before the global economic crisis, Kazakhstan’s interest rate had been above 10%.
It’s been a fast reduction too. At the beginning of the year, Kazakhstan’s interest rate was 7.5%. The Central Bank has slashed rates four times to try and combat slowing inflation and dropping growth rates.
Kazakhstan had an inflation target of between 6 – 8% in 2012. For the year to end-July, inflation measured 4.7%.
The global economy has slowed at a far faster rate than anybody predicted, forcing economies around the world to counter by reducing the cost of borrowing. Brazil and India, two of the biggest emerging markets, have also cut rates.
As well as potentially stimulating growth, there is another important side-effect for Kazakhstan in cutting interest rates. Bloomberg news agency quoted a research note from the bank BNP Paribas saying that interest rate drops had reduced the proportion of non-performing loans in the economy as they had become cheaper to pay off.
Non-performing loans are important for the Kazakh economy, which is still battling the consequences of cheap credit. Even if the interest rate cuts fail to stimulate growth, reducing bad-debt is a positive.
This article was orginally published in issue 21 of the weekly Kazakhstan News Extra. For more information click here