Kazakhstan: base rate on hold, but risk of hikes remains

The National Bank of Kazakhstan kept its base rate unchanged at 18.00% today, in line with consensus and our expectations.

The NBK explicitly indicated that policy rates are likely to remain on hold until mid‑2026. This cautious forward guidance reflects several uncertainties, including:

• The inflationary impact of the VAT increase from 12% to 16%, effective 1 January.
• The outlook for regulated utility tariffs, with the official moratorium on price hikes expiring in 1Q26.
• The parameters and scale of quasi‑fiscal lending from the state‑owned Baiterek Venture Fund in 2026 (expected lending of around KZT 8 trillion, or 4-5% of GDP).
• The impact of robust domestic demand, with GDP growth outperforming previous expectations and reaching 6.5% in 2025.

While inflation eased to 12.3% YoY in December 2025 and the tenge appreciated by 9% against the US dollar since early 4Q25, the NBK stressed that inflation risks remain elevated for 2026.

We see additional upside risks to inflation not highlighted by the central bank:

• The residual inflationary effect of the supportive fiscal policy of 2025, reflected in the persistently high state budget deficit of c.2.7% of GDP in 2025.
• A sharp early January spike in Russia’s CPI following its own VAT increase, which could spill over into Kazakhstan, given strong trade links.
• The expected diminishing disinflationary impact of the tenge’s recent appreciation. Our baseline assumes USDKZT drifting back into the 530-560 range this year (from the 500-510 range currently), as fuel export flows moderate after a strong 2025. Moreover, FX market support is likely to weaken if sovereign fund FX sales are reduced according to official budget plans.