Kazakhstan

Kazakhstan experienced the same post-USSR disruption as other FSU countries but moved more quickly at first towards a stabilised market economy. It then had a long period of step-by-step changes in monetary operations, with periodic reversions to fixed exchange rates interrupting a trend towards indirect monetary instruments focused on price stability, with a more decisive shift towards inflation targeting at the end of the period.

YearsTargets and attainmentClassification
1992-93independence December 1991, with commitment and early actions to move to market economy; local branches of central and state specialised banks made 1991 into local banks, also some small commercial banks; membership of ruble zone but some local measures taken from 1991, to raise central bank refinancing rate and introduce reserve requirements, and to strengthen capacity of central bank (including from late 1992 credit auctions); end of USSR leads to disruption to trade and payments and high credit expansion 1991; cash shortages 1992 lead to measures to encourage use of cheques; by early 1993 government, which had been strong advocate of continuation of ruble zone, was contemplating introduction of own currency, plans made concrete after Russian currency reform mid-1993 and implemented late 1993unstructured discretion UD
1994-2016stabilisation programme with own currency derailed by central bank expansion of credit to net out and clear high domestic interenterprise arrears March 1994, which brings massive depreciation; stabilisation resumed June 1994; credit auctions become more important and more closely linked to central bank’s refinance rate; directed credits continue but at refinance rate; banking sector reforms of various kinds, from prudential regulation to payments system, with restructuring of specialised banks; forex auctions from late 1993 determine official exchange rate with limited intervention; 1995 directed credits eliminated, rising use of treasury bills and central bank short-term notes, Lombard facility introduced, credit auction and reserve requirements adjusted, central bank autonomy increased; banking sector consolidation and reform; mid-1995 capital inflows lead to lower forex intervention and more emphasis on base money targets; credit auctions gradually replaced by OMOs; 1997 shift towards longer-term (two years) treasury bill trading; from mid-1990s increasing exploration, production and (via new pipelines) distribution of oil and gas; Asian financial crisis 1997; more serious adverse effects from Russian financial crisis 1998 contribute to shift from previous de facto crawl vs USD to freely floating exchange rate April 1999 with inflation as primary target, plus major depreciation, followed by switch to forex intervention to prevent large capital inflows causing appreciation; strong trend of monetisation (decline in velocity); stabilisation fund for excess oil and gas revenues set up 2001; exchange arrangement is now managed float, with policy focused on competitiveness and inflation; some growth in government securities markets; 2004-5 talk of future move to inflation targeting, but shallow financial markets, low monetisation and hence unpredictable money demand pose problems; banking sector very concentrated and reliant on external financing; mid-2000s accelerating monetary and credit growth, plus large capital inflows, complicate monetary policy; scope and level of reserve requirements increased 2006; GFC hits banks hard via cut in external financing, burst of property bubble and revelation of large NPLs; GFC badly affects economic activity via other channels as well as banking; central bank provides general liquidity injections and specific support to weak banks, government cuts taxes; exchange rate vs USD, stabilised since late 2007, devalued early 2009, with trading band widened asymmetrically early 2010; previous dedollarisation reversed; banking sector recovery very slow and difficult, with continuing high overall level of NPLs; exchange rate trading band abandoned early 2011 but central bank still manages rate closely; 2013 reserve requirements revised, more use of repo operations to control liquidity, expected move to more active use of OMOs with new policy rate within interest rate corridor; 2014 inflation targeting formally adopted as medium-term goal, although arguably a number of prior issues need to be resolved first, on monetary operations and instruments, forward-looking behaviour by central bank, and high dollarisation; 2014  Russian-Ukrainian war, sharp fall of ruble; early 2014 devaluation plus narrow exchange rate band, renewed focus on exchange rate stability; late 2014 fall in oil price; exchange rate band asymmetrically widened late 2014 and again mid-2015; 2015 start of Eurasian Economic Union; mid-2015 central bank sets out plan for phased transition to inflation targeting over period to 2020, including new policy rate supported by OMOs; late 2015 exchange rate arrangement moves to managed float; inflation target band missed for most of 2015 and 2016loosely structured discretion LSD
2017inflation within target band 2017; many but not all of changes needed for full-fledged inflation targeting now in place; banking sector remains weak, credit growth lowloose inflation targeting LIT

Selected IMF references: BPSA 1993 pp34-45, 57-60; SR 1993 pp12-17; BPSA 1994 pp2-3, 22-31, 38-9; RED 1995 pp1-4, 35-7; RED 1997 pp29-31, 36; RED 1998 pp16; SR 1999 pp4-8, 10-12; SR 2000 pp9, 23-4; SR 2002 pp9-10, 19-20; SR 2003 pp6, 9, 11-12; SR 2004 pp7-8, 15-16; SR 2005 pp6-8, 15-16; SR 2007 pp7-13; SR 2008 pp3-8, 11; SR 2009 pp3-9, 14; SR 2010 pp3-7; SR 2011 pp6-7, 11-16; SR 2013 pp6, 10, 11-12; SI 2014 pp17-27; SR 2014 pp12-13; SR 2015 pp4-5, 13-14; SR 2017 pp11-12; SRIA 2017 p3; SR 2018 pp11-12.

Other references: National Bank of Republic of Kazakhstan (2015, 2021).