National Bank of Kazakhstan preparing pilot project for implementation of digital tenge

At the Extended Government session chaired by the Head of State, Chair of the National Bank Erbolat Dossaev reported on the results of the implementation of the monetary policy and in general, on the activities of the National Bank of Kazakhstan for the first half of this year.

So, according to him, the results of the first six months of this year. formed against the backdrop of the next waves of the ongoing pandemic, the spread of new strains of coronavirus, as well as the associated high volatility in the financial and imbalances in the commodity markets. Under these conditions, the National Bank pursued an adaptive monetary policy aimed at restoring business activity in accordance with the main priorities identified by the President of the Republic of Kazakhstan for 2021.

Speaking about the main results of the activities of the National Bank of the Republic of Kazakhstan for the 1st half of 2021, Dossaev said that in February 2021, to implement the tasks set to strengthen the coordination of macroeconomic policy, the National Bank signed an Agreement with the Government and the Agency of the Republic of Kazakhstan for Regulation and Development of the Financial Market for 2021-2023.

“Since the beginning of this year, as a result of an imbalance in individual consumer markets, inflation in June of this year. amounted to 7.9%. In order to stabilize inflation in the medium term, the National Bank in March of this year. the Monetary Policy Strategy until 2030 was approved, aimed at strengthening the monetary framework, developing the financial market and carrying out structural reforms in the economy,” said the head of the National Bank of the Republic of Kazakhstan.

In order to ensure macroeconomic stability in the 1st half of this year. The National Bank ensured stability in the domestic foreign exchange market, allocated an additional 200 billion tenge for the implementation of Business Roadmap - 2021, ensured a positive return on the assets of the National Fund and the UAPF.

In addition, active work continues to digitalize the financial sector. Its important components are the National Payment System and the preparation of a pilot project for the introduction of ‘digital tenge’.

Also, the chairman of the National Bank noted that against the background of the growth of vaccination and the improvement of the external situation, business activity is being restored in the world and in Kazakhstan. As a consequence, the Global PMI rose to a 15-year high on the back of growth in services, manufacturing and hiring. In turn, in Kazakhstan, the business activity index in June of this year. peaked since May 2019, reaching 51.6 due to recovery in all sectors of the economy.

“Taking into account the positive changes in external and internal markets, the National Bank at the beginning of June this year. raised the forecast for economic growth in Kazakhstan in 2021 to 3.6-3.9%. Following this, the EBRD also improved its forecast for economic growth in Kazakhstan from 3.0% to 3.6%. For the further recovery of the global and national economies, the main risk is the likely strengthening of quarantine restrictions due to the spread of new strains of coronavirus,” said Dossaev.

Rising prices in global commodity markets, coupled with fiscal stimulus, led to an accelerated recovery in global demand and a subsequent shortage of goods and raw materials. According to the World Bank, the rapid growth of price indices for metals and minerals, for agricultural raw materials leads to a widespread rise in the cost of final products.

The FAO food price index rose steadily for 12 months in a row before declining in June this year by 2.5 percentage points, to 124.6 points, still remaining 34% higher than in the same period in 2020.

A sharp acceleration in business activity increases the risks of overheating economies in many countries. In this regard, the Central Banks of developing countries are moving to tighten monetary conditions to contain the rise in prices and inflationary expectations.

The head of the National Bank of Kazakhstan informed that the economies of the EAEU countries are also experiencing significant inflationary pressure, as a result of which inflation has accelerated by an average of 1.4 times since the beginning of this year. In these conditions, the Central Banks have raised key rates and announced further tightening of monetary conditions until the end of this year. In Kazakhstan, the base rate has been kept at 9.0% for 12 months from July 2020.

In June this year, the inflation accelerated to 7.9% due to a 10.6% rise in food prices. As a result, the increasing imbalances in the food markets give a stable character to inflationary expectations, which in June this year. rose to an all-time high of 59%. The rise in food prices was highlighted by 87% of the respondents.

In this regard, as Erbolat Dossaev said, against the background of a sharp rise in prices, the main priority for the Government, the National Bank and local executive bodies is to curb food inflation.

In the context of recovery in business activity and consumer demand, the acceleration of the non-food and service components of inflation, which were suppressed last year due to quarantine restrictions, also resumed.

Considering the acceleration of price growth, the National Bank expects that by the end of 2021 inflation will exceed the established target and return to the target corridor of 4-6% in the second half of 2022.

“Taking into account the improvement in the situation on the world commodity markets, according to our forecasts, with an average oil price of $60 per barrel in 2021, the current account deficit is expected to decrease by 1.8 times to — $3.6,” he added.

In the first half of the year, the foreign exchange market was quite stable, despite the volatility of external markets. Following the results of June of this year. the tenge appreciated by 0.9% to 424.95 tenge per US dollar against the background of an 8.4% increase in oil prices. The growing demand for foreign currency is holding back the strengthening of the tenge. Since the second quarter, there has been an increase in demand due to the recovery of business activity, the realization of deferred demand for imports and dividend payments to foreign investors. Average daily trading volumes in June reached $145 million.

"Taking into account these factors, the growing demand for foreign currency and the global strengthening of the US dollar continue to exert significant pressure on the tenge," said the chair of the National Bank.

For the 1st half of this year As a result of the joint work of the National Bank and the Ministry of Finance, the share of market investors' participation in government securities auctions increased almost 3 times — from 32.7% to 94.3%. The increased participation of local and international investors contributed to the decrease in the borrowing cost for the Ministry of Finance by an average of 45 bp. The inflow of non-residents into government securities and notes of the National Bank amounted to almost $850 million.

In the first half-year the assets of the National Fund decreased to $57.5 billion due to the allocation of transfers in the amount of 2.1 trillion tenge. Revenues for the same period amounted to 942 billion tenge.

Despite the volatility of the markets, for 6 months of this year. the National Fund's profitability was ensured in the amount of 2.5% or $1.5 billion. Its further growth is expected to reach $3 billion by the end of this year.

As for gold and foreign exchange reserves, for the first half of this year they fell by $580 million, to $35.1 billion.

The gold portfolio decreased by $1.8 billion against the background of a decrease in prices by more than 7%, as well as due to the sale of gold as part of option strategies.

As a result, gross international reserves for 6 months amounted to $92.6 billion due to the volatility of gold prices and the allocation of transfers to the republican budget.

Within the framework of Tokayev's instructions on the early withdrawal of pension savings, this right was used by almost 360 thousand citizens in the amount of 1.6 trillion tenge, of which 98.5% falls on the solution of housing issues.

“Against the background of a decrease in the rate of these withdrawals, pension assets began to recover, amounting to 12.8 trillion tenge at the end of June 2021. Following the results of 6 months of this year. the profitability of pension assets was 6.1% with inflation of 4.6%,” Dossaev said.

For 5 months of this year deposits increased to 24.5 trillion tenge due to the growth of tenge deposits, which increased by 1.6 trillion tenge, which is 2 times higher than the growth of foreign currency deposits.

The dollarization of deposits of individuals decreased to a minimum level over the past 12 years — 34.8%, mainly due to deposits of up to 50 million tenge.

Lending to the economy is recovering with an increase of 7%, reaching 15.6 trillion tenge at the end of 5 months of this year. The growth of loans to enterprises amounted to 4.7%, incl. small business — 12.4%. The weighted average rate on loans issued to enterprises in tenge decreased by 50 bp. from 12% to 11.5%.

Continued recovery in business activity in 2021-2022 creates favorable conditions for further growth of lending to the economy based on market principles.

Also in the first half of this year the National Bank continued to actively implement anti-crisis initiatives.

1. According to the Program of concessional lending to business entities as of July 9 of this year. due to revolving financing, loans were issued for almost 1 trillion tenge. The term for the implementation of the program was extended until the end of 2021.

2. Within the framework of Employment Roadmap-2021, in addition to the 700 billion tenge previously allocated by the National Bank in June 2021, the allocation of an additional 200 billion tenge was approved.

3. Under the Economy of Simple Things program, loans were issued for more than 800 billion tenge, applications for almost 1.5 trillion tenge were accepted.

“Thanks to the digitalization of the financial sector, non-cash card transactions in 5 months of this year grew 2.4 times, the share of online payments reached 82.6%,” the head of the department said.

The National Bank continues to implement projects to create the National Payment System. The interbank system of payment cards being created will make it possible to localize the processing of all internal card transactions in Kazakhstan. Visa and Mastercard have previously agreed on these approaches.

The launch of the National Payment System in a pilot mode, scheduled by Dec. 1, 2021, will begin to eliminate the fragmentation of payment systems and ensure the security of the payment market in Kazakhstan.

In the second half of this year, the world is expected to continue volatility and uncertainty in the external financial and commodity markets, as well as high inflationary expectations. These main factors will determine the further trajectory of the recovery of the Kazakhstani economy.

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