About situation around financial market in 2004 - the National bank

/National bank of the Republic of Kazakhstan, January 13, 05/ - Below is the full text of the regular release by the National bank of Kazakhstan aimed to describe the situation around the financial market of Kazakhstan in 2004 IRBIS (note). INFLATION According to the official data of the Statistics Agency of the Republic of Kazakhstan in 2004 the inflation remained at the same level as in the last month and equaled 0.9% (in December 2003 - 0,9%). Food products became more expensive by 1.2%, non-food products - by 0..3%, services - by 0.7%. In general in 2004 (December 2004 to December 2003) inflation equaled 6.7%. In the last years the inflation rate remains at relatively low level - within 6-7% based yer-on-year estimates (2001 - 6.4%, 2002 - 6.6%, 2003 - 6.8%). In light of consumer prices food products are become more expensive by 7.4%, price and tariffs on non-food stuff and service by 6.2% and 5.9%, respectively. The specificity of inflation dynamics in 2004 is gradual growth of prices on all products and services. In summer period of the year contrary to the expected seasonal decrease in inflation rate, it went up. Average inflation in 2004 equaled 6.9% (2003: 6.4%). It was projected to be somewhere in this range by the main courses of the monetary policy for 2004 - 2005 ()5-7% in average) and Medium term plan for social and economic development of the Republic of Kazakhstan for 2005 -2007 (5.6%-7.0% in average for 2004). Beginning from 2004, The National bank begins targeting base inflation. In compliance with the Decree of the Management of the National bank of the Republic of Kazakhstan the base inflation is calculated in two ways by the Statistics Agency of Kazakhstan. The first methodology excludes prices on fuel, vegetables fruits and coal from CPI, while the second excludes 5 items, which appreciated most, and 5 items, which depreciated most. According to 11 months of 2004 base inflation equaled 5.8% and 5.4% accordingly, while for January -November of 2004 compared to the same period of 2004 it was 6.5% and 5.9%. Main courses of the monetary policy for 2004-2006 assumes that base inflation is equal to 4-6% in 2004, no considerable difference between this amount and the actual is expected. BALANCE OF PAYMENTS Dynamic price rise on energy commodities within 2004 became factors that positively affected the balance of payment and strengthened Kazakhstan position. According to results of 9 months of 2004 export from Kazakhstan exceeded 14 b US dollars. This is half and one time more than a year ago. Record high export covered the increased running expenses of resident enterprises in full and resulted in positive balance. According to results of 9 months positive balance of current operations exceeded 232 m US dollars. Favorable price hike on commodities encouraged additional investments into extracting industry. In 9 months of 2004 positive balance of direct investments equaled 2.6 bn US dollars, 19% increase compared to the whole 2003. Significant foreign capital inflow was backed by borrowing operations. In 9 months of 2004 banking sector attracted more than 3.8 b in loans and bonds. Large scale borrowing encouraged lending practice within the country. INTERNATIONAL RESERVES AND MONEY AGGREGATES In order to support national currency within limits that would not negatively affect the competitiveness of Kazakhstan goods, National bought certain volumes at market. This was the main source for international reserves boosting and contributed to the National fund. In 2004net international reserves increase by 87.9% to $9,277.0 m. External debt servicing and replenishment of the National bank's assets was neutralized by foreign currency inflow on accounts of the Government. As a result net foreign exchange reserves rose by $4,240.2 m to $8,473.4 m. Assets in gold rose by $77.6 m to $803.6 m. International reserves of the country, i.e. including assets of the National fund, rose by 66.3% to $14.3 b. In 2004 monetary base expanded by 82.3% to KZT577.9 bn largely due to increase in international reserves. In 11 months of 2004 money supply rose by 56.7% to KZT1,523.1 b. The main factors of money supply were increase in internal assets of banking system and credit houses by 67% and their internal assets by 44.5%. Cash in circulation (М0) in 11 months 2004 rose by KZT345.9 b, while deposits in banking system and credit houses within structure of money supply - by 60.6% to KZT1,177.2 b. Money multiplier for the same period rose from 3.07 to 3.11. FOREIGN EXCHANGE MARKET Within 2004 the situation at foreign exchange market was characterized by the tendency of tenge appreciation versus US dollar. Tenge appreciated thanks to significant inflow of foreign currency into Kazakhstan. The main sources of foreign currency inflow are export revenues, nacked by price rally at energy markets, as well as external borrowings by banks. This encouraged additional volume of FX trades both at organized and interbank markets. Weighted average exchange rate tenge in 12 months equaled KZT135.92 per $1. Exchange rate determined the local Exchange at year end amounted to KZT130.00 per dollar. Within the year tenge devaluation was observed in July and August (0.17% and 0.16% ). In 2004 real tenge appreciation versus US dollar equaled 15.3%, versus euro 7%, and rouble 1.3%. In 2004 the volume of Exchange trades in dollar position equaled $9,304.6 m. and superceded previous year result by 46.6%. At OTC market the volume equaled and $8,270.0 m. GOVERNMENT SECURITIES MARKET In 2004 Finance Ministry of Kazakhstan offered securities for KZT126.2 b, an increase of 20.1% over previous year. Among this securities those which are short-term comprised 40.4%? medium-term - 59.6%. Finance Ministry redeemed its securities for a total of KZT71.7 b. As a result the volume of securities in circulation issued by the Finance Ministry rose by 41.1% on December-to-December basis to KZT 229.5 b. FM redeemed 3- and 6-months MEKKAM in December 2004. As a result the structure of securities in circulation looked as follows: MEKKAM (only 12 months) comprised 9.2%, MEOKAM (from 2 to 10 years) -89.6% and MEIKAM (3 to 7 years) - 1.2%. In 2004 the yield on 12-months MEKKAM decreased from 5.10% to 4.79%, 5- year MEOKAM from 6.18% to 5.58%, 6-year MEOKAM from 6.19 % to 5.68%, 7- year MEOKAM from 6.19% to 5.78% and 8-year MEOKAM from 6.30 to 6.19% (as of last auctions). Yields on other securities remained unchanged. In compliance with Terms of issue, floatation, circulation, servicing and redemption of government securities, approved by the Government of Kazakhstan on September 8, 2004 #941, from 1 January 2005 following types and maturities of government securities have been developed: - Short-term notes (MEKKAM) with 3, 6, 9 and 12 months to maturity; - Medium-term (MEOKAM) with maturities over one year to 5 years inclusive; - Long-term bonds (MEUKAM) with maturities over five years; - Сmedium-term indexed notes (MOIKAM) with maturities over a year to five years; - Long-term indexed bonds (MUIKAM) with maturities over 5 years; - Long-term savings bonds (MUZhKAM) with maturities over five years. Volume of notes issued by the National bank in 2004 amounted KZT561.9 b. The National bank redeemed notes for a total of KZT374.8 b. As a result at the ned of 2004 the volume of notes issued by the National bank rose by 99.5% compared to December 2003 and equaled KZT396.1 b. Weighted average yield on short-term notes went down from 5.45% to 4.40%. INTERBANK MONEY MARKET In 2004 at interbank market bank's activeness on floatation of liquid funds in tenge was observed.. The volume of total floatations of interbank tenge deposits rose by 27.0% to KZT577.9 bn, while weighted average cost decreased from 2.78% to 2.10%. On dollar deposits reverse tendency was observed. The volume of floatation of dollar deposits decreased from 38.6% to $26.9 b, while weighted average cost of funds dropped from 1.73% to 3.11%. DEPOSIT MARKET In January -November 2004 the market of deposits was characterized by following positive tendencies. The total deposit volume from residents rose in 11 months by 60.6% to KZT1,177.2 bn. Deposits in the national currency increased by 61.0% to KZT624.2 bn, while deposit in foreign currencies also rose by 60.1% to KZT 553b. In January - November 2004 the increase in deposits accepted from private individuals (including non-residents) rose by 22.6% to KZT420.9b. This said, tenge deposits rose by 74.3%, while deposits in foreign currencies decreased by 8.4%. In 11 months 2004 weighted average interest rate on tenge deposits from private individuals fell from 10.9% to 9.2%. LOAN MARKET Loan market remains to be one of the most dynamic in Kazakhstan. In 11 months 2004 the volume of banking loans to the economy rose by 46.0% to KZT1,428.1 b. Changes occurred in the structure of loans either by type of currency and by type of maturity. The increase in the loans denominated in the national currency superceded the increase in foreign currency denominated loans. Loans in the national currency rose by 49.0% to KZT648.9 b, in foreign currency - by 43.6% to KZT779.1 b. As a result the share of tenge loans increased from 44.5% to 45.4%. In 11 months 2004 long-term loans rose by 52.6% to KZT928.6 b. Short-term - by 35.1% to KZT499.5 b tenge. Share of long-term loans rose from 66.2% to 65.0%. Interest rate change dynamics was different. Thus, in 11 months of 2004 interest rates on loans in the national currency to private individuals rose from 20.3% to 20.6%, loans to legal entitles interest decreased from 14.9% to 14.5%. [2005-01-13]