Monetary and credit policy of National Bank of Kazakhstan

There are various expert assessments of a possible second wave of global economic and financial crisis in 2010, leading to deterioration in the global economy, the next and more significant drop in prices on world commodity markets. As a result, the global economic recovery could move over to a later period.

In addition, in 2011–2014 years in Kazakhstan will be observed activity in the sectors of oil and natural gas, expressed in increasing oil production.

Maintaining economic activity will contribute to conservation activities in the public sector, and measures of state support sectors of the economy, implemented under the Joint Action Plan of Government, National Bank and the FSA to ensure the stability of the economy and financial system in 2009–2010 years (hereinafter – the plan).

Contained in the Plan funds for the agro-industrial complex, small and medium-sized businesses, construction will provide increased activity in agriculture, manufacturing and service sectors, including trade and transport.

To avoid the high costs of restoration of economic sectors affected by the impact of external shocks that require adjustment of it’s managed by the state. The policy of government regulation should be balanced, stimulating the economy without compromising macroeconomic stability. During the period of balanced and qualitative growth of the economy such an approach would «improve» the economy, to avoid its recurrence «overheating» in the future and improve the quality of investment.

Maintaining stable and dynamic economic growth with tight coupling to the dynamics of the global economy would be impossible.

At this stage the task is not only to find a way out of crisis, but also by analyzing past mistakes, to identify key priorities and directions for future growth, to develop the basic approaches for constructing a new development model in post-crisis period. Sustainability of economic development will be a re-sources of growth in domestic demand and supply factors and enhance their role in the growth, development of non-extractive industries, the domestic demand, and industries with international competitiveness – the so-called «core» of the economy.

Economic diversification and development of non-tradable sectors will facilitate the program of forced industrial-innovative development of the country's economy in 2010–2014 years. The implementation of industrial policy will create new jobs in the economy, and will promote quality of its growth.

Positive impact on the economy will have a major investment projects.

Factor stimulating economic growth, will also be securing the necessary level of money supply and lending economy banks. Increased lending activity of banks will facilitate the recovery of the banking sector as a result of principal repayments on external debt service, improved asset quality of banks. In addition, the restoration of confidence of economic agents in the banking system will ensure the growth of deposit base and the completion of banks' resource base through internal sources.

Full implementation of internal capacity development will in the future to ensure sustainable economic growth, sufficient to adapt to increased competition in the markets after the crisis, as well as to adapt to the challenges of long-term prospects.

3. Target indicators of socio-economic development Republic of Kazakhstan

Target indicators of socio-economic development on economic growth, income, employment and inflation, will be identified in the Strategic Plan for Development of Kazakhstan till 2020.

In order to ensure, by 2020, given the parameters of economic growth compared to 2010 in 2010–2014, real GDP is expected to increase by 15,7%.

To ensure the accession of Kazakhstan to the year 2020 the number of countries with high income in terms of GDP per capita, this figure will be increased to levels higher than 10 thousand dollars. USA 2014.

Reduce inflation in the long run will contribute to reducing its level in the medium term with 6,0–8,0% in 2010 to 7% at the end of 2014.

To ensure the level of unemployment in 2020 at a level no higher than 5% in 2010–2014 it is planned to decrease to 6%.

Economic policy and forecast of social and economic development for 2010–2014 years

Aims and objectives of economic policy

During the period of recovery growth rate of industry growth to slow during the crisis should reach pre-crisis level, and then come to the fore laying the groundwork for expanding production capacity in Kazakhstan.

The aim of economic policy in 2010–2014 years – the restoration and maintenance in the future quality and balanced growth of the economy.

Recovery of the real GDP growth, high-quality and balanced growth of economy possible while ensuring a supportive macroeconomic environment. In turn, the quality and sustainability of economic growth in the medium term should be provided with «kernel» of the economy.

To achieve the goal of economic policy will address the following main tasks:

– Macroeconomic stability and restore economic growth;

– Forming the «nucleus» of the domestic economy.

To perform the tasks necessary to form a complete system implementation of macroeconomic policies, including a balanced use of instruments of monetary, fiscal and structural policies.

Structural policies will aim at enhancing the role of domestic factors in ensuring sustainable economic growth. To do this would be implemented restructuring the economy towards the development of «non-extractive» industries, the domestic demand. As the recovery of economic growth will be driven by the accelerated development of industries with international competitiveness of industries and the «core economy».

The implementation of structural policies will be implemented under the new Tax Code, which stimulates an increase in the share of non-primary sectors in the economy and accelerate the modernization of the economy.

In the framework of structural policy provides:

– Public investment in priority areas of socio-economic development;

– Government support for the development of non-extractive industries, increase their investment attractiveness;

– Promotion of long-term investment in primary sectors of economy with the participation of development institutions;

– Stimulating the investment activity of the private sector; Also, further development, a mechanism of public-private partnership.

To restore economic growth will be challenging monetary policy aimed at ensuring the volume of money supply needed to increase economic activity, but not to give in inflationary pressures on the economy.

However, long a policy of «cheap money»  can contribute to accelerating inflation. Therefore, as the recovery of economic growth focus of monetary policy will shift toward an anti-inflationary adjustment.

Monetary policy will be formed depending on the changing situation in world and domestic economies. The main instruments of monetary authorities will issue short-term notes, deposits of banks, changes in minimum reserve requirements. Rates of the National Bank will be regulated depending on the prevailing situation in the money market.

In the domestic foreign exchange market will not be tolerated sharp short-term fluctuations in the exchange rate of tenge caused by speculative factors and changes in supply and demand of foreign currency.

In conjunction with structural measures and monetary policy fiscal policy will be aimed at creating conditions for economic recovery and stimulate further growth.

Stimulating the economy will take into account not harm to macroeconomic stability.

In the framework of fiscal policy provides for maintaining the level of public spending, providing on the one hand the level of aggregate demand, on the other – the level of investment activity through public investments needed to restore growth.

Will be disciplined and efficient management of oil revenues.

Consumption growth in 2010–2014 years to an average of 2,8%. While public consumption will grow at a faster pace than household consumption.

In general, the Government will provide the following parameters of growth of GDP components.

Accordingly, fiscal policy for the upcoming mid-term will be built based on the need to ensure specified parameters of government consumption and investment.

In 2010–2014 years predicted a gradual increase in real GDP growth of 1,5–2% in 2010 to 3,9% in 2014.

Average annual growth of gross agricultural output in 2010–2014 will amount to 2,1%.

Volume of industrial production in 2010–2014 years will grow by an average of 3.3% per year.

Growth in industrial production would help increase production in mining and manufacturing sector.

The volume of oil and gas condensate production to increase from 76.4 million tons in 2009 to 85.0 million tons in 2014.

The increase in industrial production will boost the volume of construction and transportation services.

Projected increase in growth of construction up to 3,7% in 2014, transport services – from 0,8% to 4,0%, respectively.

Volume of communication services is projected to grow at an average of more than 6.4% per year.

In the medium term, higher prices on world commodity markets and increased production will help increase exports. The growth of domestic income will increase imports.

To further encourage investment, business and consumer activity will be undertaken additional measures to maintain liquidity of economic sectors through:

– Attract additional funds from the National Fund;

– Attract additional resources to support kreditozavisimyh sectors, including through the involvement of public resources, companies and development institutions;

– To maintain liquidity of banks, including through the revision of the minimum reserve requirements.

In the case of improvement – a significant increase in world prices for raw materials, opening up access to external borrowing will increase foreign currency inflows into the country, income and expenditure budget, which in turn may lead to the reinvention of overheating economy, rising inflation and will exert pressure on the tenge exchange rate towards the consolidation and reduce the competitiveness of non-oil exports.

In this case, you must take the following measures:

– Sterilization of excess liquidity and the money issue;

– Enhancement of the National Fund;

– Tightening of fiscal policy (reduction of budget expenditures to a level below nominal GDP growth rate);

Limiting banking sector risks associated with external borrowing.

In view of the likelihood of re – «overheated» sectors of the economy, the most dependent on bank credit, you must include measures to limit and diversify capital flows and structural adjustment of industries.

Problems and Solutions

The main objective of the National Bank is determined to ensure price stability. As a result of monetary policy is actually subject to the desire of the authorities to reduce inflation, the simplest way – limiting expenditure growth, sterilization of the money supply. To achieve the goal, under-utilized potential for economic growth. However, this policy does not justify itself, because inflation remains at a fairly high level. In an effort to reach a secondary target (slow inflation), you can simply undo the decision objectively the main task – to save steadily positive growth rates.

Instruments of monetary regulation, aimed at fighting inflation should be directed not only against excessive liquidity, how to promote economic diversification and growth. To the fore the problem of refinancing of commercial banks, and as a means not only to maintain their liquidity, but also to ensure long-term liabilities to long-term loans. Monetary mechanisms must play a crucial role in minimizing the possible liquidity crises; have a positive impact on strengthening the economy in general.

 

 

 

Conclusion

 

Thus, monetary policy – one of the most powerful economic policy instruments at the disposal of the state.

The fundamental objective of monetary policy is to help the economy to reach a total production level, characterized by full employment and price stability. Monetary policy is a change in money supply in order to stabilize aggregate output (steady growth), employment and price levels.

The main task of monetary policy the central bank – to maintain a stable purchasing power of the national currency and ensuring the flexible system of payments and settlements. At the same time the central bank's policy is one of the most important parts of regulating the economy of the state.

With such means as reviewing reserve ratio, the change in the discount rate and open market operations, the Central Bank may have a determining impact on money supply, and through it – the real national product, employment and price index.

Monetary policy largely determines the exchange rates, thereby affecting the efficiency of foreign trade import and export. It can be used not only to change the basic domestic macroeconomic variables, but also to control the trade deficit.

Without the correct monetary policy pursued by the Central Bank, the economy cannot function effectively. In periods of economic recession and rising unemployment, declining productivity should increase the money supply to stimulate investment of financial resources in the production and consumer spending – is necessary to increase aggregate demand. During the period of economic growth, followed by inflation, should reduce the money supply. This is what central banks of issue are.

With the help of monetary government seeks to alleviate the economic crisis, to keep inflation in order to maintain the conditions the state is using credit to stimulate investment in various sectors of the economy.

The tools of monetary policy are, first of all change refinancing, changes in reserve requirements, open market operations with securities and foreign currencies, as well as the introduction of credit restrictions.

In our country at this stage of a rational monetary policy is to minimize inflation and recession, to prevent rising unemployment.

Thus, the state needs to regulate monetary policy, but within reasonable limits, is necessary to make the liberalization of state regulation in the banking system to invest those sectors of the economy (processing, chemical, transportation, instrumentation), which will promote local production, improve macroeconomic indicators of GDP, percentage of employment, the level of real income.

Bank of Kazakhstan retains continuity in defining the principles of forming monetary policy, subordinating its objectives the main tasks of economic policy. the upcoming 2011–2014 years, reducing inflation, while ensuring the GDP growth still remains the ultimate goal of monetary policy. The task of quantifying the economic policy is to select the best combination of economic growth and inflation. The criterion for this choice should be to improve household incomes in real terms.

In conducting monetary policy, the Bank of Kazakhstan intends to use not only all the currently available tools at its disposal, but also to expand their membership, making the set of available methods for monitoring and managing the money supply is fully adequate folding general economic conditions. However, the possibility and effectiveness of specific instruments of monetary regulation will largely relate to the restoration and development of financial market segments and strengthening the banking system. Achieving these goals will also depend on the availability of appropriate conditions created by the operation of all sectors of the economy and the necessary institutional reforms….

 

 

 

References

 

1. http://www.nationalbank.kz/? docid=96

2. http://www.zakon.kz/188027-danijar-akishev-iz-tekh-scenariev.html

3. О Национальном Банке Республики Казахстан: Закон РК от 30 марта 1995 года №2185/ Правовая система «Зан» Медиатека ПГУ

4. О банках и банковской деятельности в Республики Казахстан: Закон РК от 31 августа 1995

 

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