BAKU, Azerbaijan, July 27. The National Bank of Kazakhstan's latest decision to lower the base rate to 16.75% marked a continuation of its course toward gradual monetary policy easing. However, the pace of this process remains highly cautious. While in June the regulator reduced the rate by 100 basis points—from 18% to 17%—in July it limited the cut to just 25 basis points. This slower pace of easing itself indicates that, despite the improvement in the overall inflation picture, the National Bank does not yet consider the risks to have been fully eliminated.
The basis for the July decision was the continuation of the disinflation process. According to the National Bank, annual inflation declined for the ninth consecutive month, reaching 10.3% in June compared to 10.4% in May. For comparison, inflation reached its peak of 12.9% in September 2025, after which the National Bank raised the base rate to 18% in October. Food price growth slowed to 10.4%, while services inflation stood at 9%. At the same time, non-food inflation remained at 11.7%. It was likely this combination of declining overall inflation and the persistence of inflation in certain segments that led the regulator to opt for only a small rate cut.
It is noteworthy that the tone of the July statement was also more cautious than a month earlier. While in the previous month the regulator highlighted a noticeable slowdown in monthly inflation to 0.7% and a decline in household inflation expectations to around 12.7% in May, in July it once again drew attention to the remaining risks. Household inflation expectations increased to 13.4% in June, monthly inflation accelerated to 0.8% from 0.7% in May, and rising gasoline prices, housing and utility services, and persistently strong domestic demand were cited as additional sources of pressure.
At the same time, most macroeconomic indicators continued to improve. GDP growth accelerated from 3.7% in January–May to 4.1% in the first half of the year. Growth in fixed capital investment accelerated from 7% in the first five months to 9.6% in the first half of the year, while retail trade growth increased from 3.4% to 4.8% over the course of a month. These indicators point to continued strong business activity, but at the same time confirm the National Bank's position that domestic demand remains sufficiently strong and could once again intensify inflationary pressure if interest rates are reduced too quickly.
Overall, the latest decisions indicate not so much a change in priorities as a gradual normalization of policy following a period of tightening. While in the autumn of 2025, when inflation reached 12.9%, the National Bank raised the base rate immediately to 18% in order to return monetary conditions to restrictive territory, the regulator is now moving toward cautious policy normalization. However, the modest July reduction of 25 basis points shows that the National Bank still views disinflation as a process requiring further confirmation. As long as inflation remains more than twice the medium-term target of 5%, while inflation expectations and domestic demand remain elevated, the regulator will likely continue to favor small and gradual adjustments, keeping monetary conditions moderately tight.
An additional factor explaining the National Bank's caution remains the external economic environment. In its statements, the regulator has repeatedly pointed to the persistently high level of uncertainty in global markets. Among the main risks it cites are the conflict in the Middle East, which is keeping energy prices and certain categories of food prices elevated, as well as persistent inflationary pressures in the world's largest economies. For the National Bank, this means it is necessary to preserve room for maneuver. As long as high uncertainty persists in global markets, reducing borrowing costs too quickly could increase pressure on the tenge, accelerate imported inflation, and complicate the return of price growth to the target level.
