June Inflation at 0.5%
Translated from Russian with the help of AI. Original: Russian version
June inflation came in at 0.5%, and conditions now allow the National Bank to cut the base rate and let the tenge weaken under market forces.
Inflation for June was just 0.5%, which is a fairly good result. Annual inflation stood at 14.6%, which indicates that the high-base effect of 2022 is fading from the inflation figures, and there is growing confidence that the NBK will keep inflation within its announced 2023 target corridor of 11-14%.
Monthly inflation is steadily declining, which shows that the National Bank's policy of a high rate and restraining the tenge exchange rate is working, and good preconditions for cutting the base rate are already emerging.
Inflation data also influence decisions on how to respond to the tenge exchange rate. In June, the National Fund's foreign currency sales for transfers to the state budget fell significantly, and for July the NBK has given roughly the same forecast as for June. But the most significant decision is the reduction, from 1 July 2023, of the share of foreign currency export revenue that the quasi-public sector must sell, from 50% to 30%. I think the quasi-public sector will certainly take advantage of this, since the sharp weakening of the ruble, low oil prices and rising budget expenditures will continue to put pressure on the tenge, and expectations of a weaker tenge will emerge.
Thus, we can say that monthly inflation already allows the base rate to be cut and the tenge to be let go somewhat under the influence of market factors, such as the Russian ruble and oil prices. My expectation for July is that the base rate will be cut slightly and the tenge will weaken against the dollar within 1-3%.