MAIN DIRECTIONS OF MONETARY POLICY IN KAZAKHSTAN FOR 2001

/IRBIS, March 11, 01/ - The National Bank of Kazakhstan (NBK) published main directions of monetary policy for year 2001 - strategic program for this year. IRBIS presents full text of "Main Guidelines For 2001". NBK will conduct monetary policy on the assumption of its main task, provision of external and internal stability of tenge. Main target of monetary policy is maintenance of low inflation rates (6-8% by the end year). In achieving this objective, National Bank will regulate monetary base using all existing instruments. NBK intends to keep free floating exchange rate regime that would maintain price competition of Kazakhstani goods on the external markets. In case of large foreign exchange inflows, Kazakhstan will not allow strengthening of tenge to the levels that hinder exporters' competitiveness. Exchange rate policy is aimed at prevention of speculative fluctuations of the tenge. Considering problem of capital flight NBK would continue improving of export-import control system. The system will secure full return of export proceeds and restitution of goods on import contracts. In this respect, modernization of legal and juridical regulation over foreign exchange control will be implemented as well. Preliminary estimations suggest that in case of favorable world market conditions, current account balance would be equal to 3% of GDP. This development in combination with external financing, mainly direct investments, would contribute to increase of international reserves and strengthening of external position. Gold and foreign exchange reserves would be maintained at the level of 3 month import (goods and services). Main instruments of monetary policy will be following: open market operations, mostly issue and redemption of short-term NBK notes, regulation of official interest rates and refinancing of banks using rediscount of bills of exchange, short-term credits (daily and overnight). Lowering of inflation rate to targeted levels would allow to decrease refinancing rate to 10-11% by the end year, thus maintaining it slightly in positive real terms. This should become an indicator for lowering of credit cost down to 12-15% APR, thus increasing possibilities for real sector enterprises. It is expected that annual monetary base would grow by 12-15%, aggregate money supply by 25-30%, monetization index of the economy by 17.5-18%. Development of the primary market of government bonds would be implemented in interaction with Ministry of Finance (MOF). MOF will issue government bonds denominated in tenge focusing on mid term and indexing on inflation. NBK will also further develop the financial market promoting derivatives market. It is expected that deposits of residents would increase by 35-40% up to KZT390-410 bln, this will significantly increase banking resources. Deposits of population (including non-residents) will increase up to KZT135-140 bln ($890-910 mln). The broadening of credit activity in view of growth in deposits would increase loans to the economy by 35-40% up to KZT370-385 bln ($2.3-2.5 bln). The further development of bill of exchange market will also increase credit potential of banks. National Bank will conduct rediscount operations with banks crediting economy using bills mechanism. NBK will continue work on list of first-class issuers and improve legislative regulation of the bills market. It is expected that banks would actively use refinancing of bills (rediscount) of enterprises at the discount rate. The rediscount rate would be equal to 9- 10% by year end. In the first half of 2001 preliminary results of implementing the Program on switching into international standards by the second tier banks will be summarized, which will make it possible to improve objective assessment of the banking sector in light of modern international banking experience. The Program is to be finished by the end of the year. In early 2001 the National fund of the Republic of Kazakhstan will start functioning, which is meant to stabilize the revenues of the budget received from raw materials sector, creation of reserve assets in case of critical situations in the economy, forming accumulations for the next generations. The National Bank will manage the assets of the National fund based on the agreement to be signed with the government. In order to implement the measures directed at strengthening and developing all segments of the country's financial market, increase the public confidence and attracting additional temporary free funds of the population into the financial sector, further improvement of macroeconomic conditions for the development of the industry, as well as reforming the social sphere, we intend to: - introduce supervision methods on consolidated basis in order to strengthen the stability of the banking sector and fulfilling 25 major principles of an effective banking supervision, develop the recommendations on managing the bank risks; - improve the norms and legislature for the development of the organizations that conduct certain banking transactions, including postal- savings institution system; - facilitate the development of new financial instruments; - continue working on perfecting the system of mandatory guarantee (insurance) of the deposits of individuals in the second tier banks towards the covering demand deposits; - create a fund for insurance of bank liabilities on interbank loans; - create secure insurance system (financial and institutional strengthening of insurance companies, introduction of new insurance technologies, development of the infrastructure and modernization of insurance market), increase the supervision over the activities of the professional participants of the insurance market, facilitate the increase in financial stability of insurance (reinsurance) companies, also by developing and introducing a corresponding block of normative acts; - facilitate the development of the system of social insurance and participate in accelerated development of the life insurance and perfecting the legislative base for all types of mandatory insurance; - perfect the payment system (construction of reserve center of the payment system for its uninterrupted functioning, increasing the capacity and security level); - in order to expand the array of banking services, development of non- cash payments, as well as increase the transparency of transactions in retail trade continue working on the development of the National card system, development of united processing center, which will ensure compatibility of different cards and introduction of new smart-card technology; - continue working on perfecting the normative base and creation of existing system of mortgage financing and functioning of construction savings system. In order to develop housing financing and secondary market in 2001 Kazakhstan mortgage company CJSC will start buying mortgage loans from the second tier banks. This year special construction savings banks will start functioning in Kazakhstan; - facilitate the development of existing accumulative pension system, its interaction with the banking and insurance systems; - continue working on the development of monitoring of the real sector. Obtaining current and expected information directly from the company managers will increase the efficiency of monetary-financing policy of the National Bank, its orientation towards the need of the real sector.