MAJOR DIRECTIONS OF MONETARY-CREDIT POLICY OF NATIONAL BANK OF KAZAKHSTAN FOR 2003-2005

/IRBIS, January 16, 03/ - The National Bank of Kazakhstan published major directions of its monetary-credit policy for 2003-2005 - a strategic program of actions. This program was approved by the resolution #459 of the Board of the National Bank of Kazakhstan, dated November 16, 2002. Considering the importance of the document, the agency IRBIS gives the chapters "Major directions of the National Bank's activity for 2003- 2005" in full volume. The publication has been made according to the text, which was placed on the National Bank's official representatives in the Internet. In 2003 The Government and the National Bank of Kazakhstan continues to conduct coordinated economic policy, major aims of which are achievement of stable economic growth along with preservation of low levels of inflation and deficit of the state budget, creation of favorable competition conditions for goods producers and stability of the country's payment balance. The Government and the National Bank intend to preserve the mode of free fluctuating tenge's exchange rate, which causes fluctuations of the rate depending on ask and bid. It will promote to preservation of price competitiveness of Kazakhstan goods at foreign markets. The National Bank will not interfere with formation of the exchange rate, creating the minimal presence at domestic money market in case of necessity of preventing speculative changes of tenge's exchange rate. Major aim of the monetary-credit policy will be preservation of average annual inflation in 2003-2004 within 4-6% and its decrease by the year 2005 to 3-5%. The monetary-credit policy will promote to preservation of financial market's stability, further development of insurance market, securities market and strengthening of the banking system, creation of conditions for further growth of crediting the real sector of economics by banks, and also improvement of accumulative pension system. Major instruments of the monetary-credit policy in 2003-2005 will be operation of open market, such as REPO operations rediscount operations with promissory notes. In 2003 the National Bank will take measures on strengthening of regulating role of its official rates, such as REPO rates and the rate on promissory notes, and will keep them weakly positive in real expression. This will serve as the base for preparation for shifting to inflation targeting of the monetary-credit policy in 2004-2005. Gold and foreign exchange reserves of the National Bank will be kept on the level, which would cover import of goods and services for 3 months. The expected annual increases of monetary aggregates will be adequate to the rates of forecasted economic growth. In 2003 there is expected growth of the monetary base by 14-15% (in 2004 - 12-13%, in 2005 - 13-14%) and monetary mass by 22-23% (in 2004 - 16-17%, in 2005 - 15-16%). Decrease of inflation will allow by the year 2003 to decrease refinancing rate down to 6-7% APR, and by the end of 2005 - to 4.5-6%. This is to become the indicator for banks for further decrease of credit resources' cost. In 2003 there is expected growth of residents' deposits by 22-24% (in 2004 - 17-18%, in 2005 - 15-16%) and, correspondingly, due to expansion of banks' crediting activity, increase of volumes of credits - by 25-26% (in 2004 - 18-19%, in 2005 - 17-18%). There will be continued liberalization of exchange procedure in the Republic of Kazakhstan towards softening of procedure of exchange regulation of investments into securities of non-residents of investment quality, stimulation of operations of direct investing abroad, removal of excessive administrative borders while conducting of foreign trade operations. In order to decrease risks, concerned with flows of capital, there will be made prudential supervision on consolidated base, there will be introduced internal systems of risks management in banks, accumulative pension funds and insurance companies, there will be developed mechanisms of controlling and containing speculations from outside of non-financial organizations - large participants of domestic money market. As a whole liberalization of money market in Kazakhstan will be made by three stages. Program of the 2nd stage will start approximately in 2005. While determining the time limits of the stages and the list of priority operations the main conditions of further liberalization of monetary procedure will be achievement of the set before aims, condition of the payment balance and situation at the world commodity and financial markets that is to create necessary prerequisites for moving to the next stage. The liberalization will be completed entirely by January 1 of the year 2007. In accordance with international standards of formation of statistics of payment balance and foreign debt, statistical accounting of operations and methodological approaches on calculation of relative parameters of the country's foreign debt will be improved. Further development of financial market is among the major tasks of the National Bank in 2003-2005. In the sphere of banking sector development the National Bank will continues works on introduction of systems of risks management and improvement of methods of the current supervision in banks, including consolidated supervision. Besides, there will be improved the system of compulsory collective guaranteeing (insurance) of physical entities' deposits, and the degree of banking activity transparency. Since January 1 of 2004 only banks-participants of the system of compulsory collective guaranteeing (insurance) of physical entities' deposits will be able to borrow for money of physical entities and accumulative pension funds' assets. There will be continued work on development of insurance market infrastructure and activation of activity of its professional participants (insurance brokers, actuaries and authorized auditors). Risks insurance in activity of various categories of securities market's professional participants will be developed as necessary. It is planned to expand the list of compulsory types of insurance, in particular, which comprise their mass and socially important directions, and also which are connected with professional responsibility. In order to defend clients' interests concerning insurance agreements, it is planned to found a fund, which would guarantee making of insurance payments to insurers (insured insurance beneficiaries). On the first stage it is planned to introduce guaranteeing on main types of compulsory insurance, with its further expansion to other types, including volunteer insurance. In 2004 it is planned to found an independent single regulating body on financial market supervision, within the frameworks of which there will be made on-line inspection of all financial institutions and complex defense of investors' rights and interests. Special attention will be paid on increasing of financial services convergence and creation of conditions of conscientious competition for financial organizations functioning. Impulse for further development of securities market will be given by accepting of bills "About joint-stock companies" and "About securities market". The bill, which is being developed at present, "About investment and share funds" is oriented on creation of conditions for attracting non- professional investors (population first of all) for financing at the stock market. There will be taken measures on stimulation of development of such financial instruments as mortgage bonds, agent securities, short-term commercial securities and other. In order to develop collective investing it is planned to remove double taxation investment funds' revenues, which they receive on financial institutions and which are meant for making payments to their depositors (shareholders). At the same time, there will be created conditions for increasing of domestic investors' abilities on investment portfolios diversification. There will be continued work on formation of the list of first-class issuers of promissory notes (at the expense of national companies as well as managing subjects of "the middle section"), on improvement of normative legal base of promissory notes circulation and improvement of promissory notes market's infrastructure. The National Bank intends to continue improvement of normative and legal base of development of the systems of mortgage crediting and building savings. There will be founded the company on insuring mortgage credits risks. Within the framework of improving the system of corporate governance there will be started designing of standard forms of internal documents of issuers' securities taking into account corporate governance norms, which are in Recommendations on corporate governance in joint-stock companies and Norms of ethics of securities market's professional participants. It is planned to make recommendations on organization of systems of corporate governance and risks management in organizations, which conduct activity in the sphere of the stock market that is especially relevant as regards organizations, which conduct investment management of securities portfolio, and broker-dealers, who should progressively develop as investment banks. After the expected accepting of the Bill of the Republic of Kazakhstan by Kazakhstan Parliament "About electronic document and electronic digital signature" in 2003, there will be started switching to electronic form of reports of securities market's subjects to authorized body, and also specifications of shares issues and debt securities issue terms. One of priorities of the National Bank's activity is still defense of rights and legitimate interests of banks' creditors and insurance (reinsuring) while organizations while their liquidation, which is made in compliance with financial and civil norms. Realization of this task will be made through legislative instruments, which are directed towards further improvement of normative legal base, strengthening of controlling liquidation commissions' activity and guarantee of conducting of liquidation production within the frameworks of the acting legislation. Since 2003 till 2005 the National Bank, in order to switch to international accounting standards of accounting system in the National Bank and organizations, which's activity regulation is made by National Bank of Kazakhstan, intends to conduct its activity in the following directions. In 2003 there will be taken measures on teaching employees of accounting division of second tier banks international accounting standards, besides, there has been developed for insurance (reinsuring) organizations the standard card of accounts of accounting and accounting standards in the sphere of insurance taking into account the requirements, which come out of international standards of insurance activity. In 2004 there will be started work on automation of accounting in insurance (reinsuring) organizations, and in 2003-2007 there will be taken measures on introduction of automatized bank packet in the National Bank of Kazakhstan. At the same time, during the mentioned period there will be constantly conducted work on improvement of the system of accounting and financial statement of the National Bank of Kazakhstan and its subsidiary organizations, and also organizations, which's activities are regulated and supervised by the National Bank of Kazakhstan. Main attention of the National Bank in the sphere of payment systems in 2003 and in following years will be paid on introduction of the National interbank system of payment cards on the basis of microprocessor-based cards. The National interbank system of payment cards will allow to solve tasks of payment by means of wage cards, rations for military men, pensions for pensioners and other addressing payments, payment for other types of goods and services, improvement of the terms for payment of customs duties, optimization of tax collections and payments by rating authorities, accounting of medical services and etc. It will mean creation of single payment area on servicing population and trade-service enterprises, involving of population's cash into cashless turnover. During the forthcoming 3 years the National Bank will continue together with central banks of EurAsEU's countries works on organization of general payment system of EurAsEU's countries and other directions of financial markets' integration. Forecasted figures of major indicators of monetary-credit policy of the National Bank of Kazakhstan in 2003-2005 ----------------------------------------------------------------------- Forecasted for Est. ------------------- Indicator in 2002 2003 2004 2005 ----------------------------------------- ------- ----- ----- ----- Inflation (on average per year, %) 6 4-6 4-6 3-5 Refinancing rate (by the end of the year) 7.5 6-7 5-7 5-7 Gross gold-hard currency reserves: m U.S. dollars 3,008 3,355 3,541 3,673 change, % 16 11.5 5.5 3.7 Monetary base: bn KZT 207 237 268 304 change, % 18.1 14.8 12.9 13.9 Monetary mass: bn KZT 707 865 1,008 1,168 change, % 22.7 24.2 16.6 15.9 Deposits of residents in banking system: bn KZT 544 671 788 910 change, % 22.3 23.3 17.4 15.5 Loans of banks to the economy: bn KZT 614 767 905 1,059 change, % 25.3 25.0 18.0 17.0 Weighted average interest rate on term deposits of physical entities in tenge, % 9.5 8.5 7.5 7 Weighted average interest rate on loans granted to juridical entities in tenge, % 15.5 14.5 13 11.5 ----------------------------------------------------------------------- [2003-01-16]