In the face of solid growth, the Kazakh authorities have been successful in containing inflation. Kazakhstan’s economic recovery from the global crisis was rapid, with output growth of around 7½ percent in 2010–11. Real GDP growth slowed in 2012–13, mostly reflecting declines in oil and agricultural output, but was still solid at around 5–6 percent. At the same time, core inflation (excluding food, energy, and administered prices) averaged around 6 percent since 2010 or roughly half the rate of core inflation in the preceding three years. The February 2014 devaluation of the tenge reflected the central bank’s concern about loss of competitiveness, amid depreciation of the Russian ruble. Temporary inflationary pressures are likely to emerge from the devaluation, although the authorities are determined to keep inflation within the objective range of 6–8 percent.
The National Bank of Kazakhstan (NBK) has taken measures to strengthen the regulation of liquidity in the banking system. The NBK has been conducting periodic auctions for the issuance of short-term notes. In parallel, the NBK in 2012 introduced important changes to its minimum reserve requirements (MRR). For example, in order to assess more accurately the size of tenge liquidity, the NBK excluded banks’ cash on hand and correspondent accounts in foreign currency from the structure of reserve assets. In addition, over the past two years, the NBK periodically provided short-term liquidity to banks through automatic repo operations to smooth seasonal fluctuations in demand for tenge liquidity. Moreover, to enhance the transmission mechanism of monetary policy, the NBK was planning to engage in more active open market operations (OMOs) for both the introduction of a new policy interest rate. However, following the recent devaluation, the NBK tightened the exchange rate band and refocused the exchange rate both