March-95

April-95

Feb.-96

May-97

June-97

Dec.-97

N/A

N/A

0.04

0.04

0.04

0.06

0.08

0.08

0.08

0.08

0.08

0.12

- for affiliated borrowers

10

10

10

10

10

10

0.3

0.3

0.2

0.2

0.2

0.2

30

20

15

15

12

12

The amount of a bank's capital should not be less than US $13.2 trillion. The following requirements are stipulated for the banks of the first and second groups (US$ mln):

31.06.98 (f)

31.12.98 (f)

31.06.99 (f)

31.12.99 (f)

31.06.00 (f)

31.12.00 (f)

6,622,516

13,245,033

1,589,404

2,649,007

4,635,762

6,622,516

9,933,775

13,245,033

Amendments to the presidential decree of August 31, 1995 "On Banks and Banking Activities" made in July 1997 tightened requirements for the newly opened commercial banks. At present, the minimum authorised capital of a new bank is established at US $4 million. For operating banks, the capital requirement is US $1.3 million. Moreover, according to further NBK regulations, the operating capital of any bank, opening cash settlement branches, should be at least US $4 million, and to open a settlement branch the bank is required to increase its capital by US $30 thousand.

The NBK's main objective is to monitor inflation. In 1993-94, the inflation rate was strongly affected by the non-monetary factors, in particular by pricing mechanism. Until 1992 the prices were established by the government. In 1992 the pricing mechanism was put on the market "rails", i.e. the government handed over the pricing prerogative to manufacturers of products and services, retaining only tariffs for the monopolies. Alongside with liberalisation, the impact of prices on the world markets was getting more substantial as Kazakhstan was becoming more open and subject to the world environment. During 1992, the prices increased 30.6 times. In 1994, the government adopted a resolution permitting enterprises-natural monopolies to shift prices only once in a quarter of a year. That was the actual end of the pricing reform which technically ended in 1995. The inflation was curbed in 1996 when it could be predicted and successfully managed (estimated inflation rate for the year 1996 totalled 26.3% - actual rate slightly exceeded it and reached 28.7%). Owing to tight and consistent monetary policy of the NBK, the inflation rate had fallen to 11.2% in 1997. Over the year, the KZT devaluated 2.8% to the US Dollar.

Money supply has been a key component of the monetary policy implemented by the National Bank. The year 1994 was the climax of loans given by second-tier banks to the economy. Excessive money supply predetermined considerable increase in the cost of goods with accompanying decrease of actual aggregate supply, which pushed up the prices. The policies of the National Bank were targeted at reducing the increasing monetary aggregates and the redistributing of the factors affecting monetary base growth (such as increase of foreign assets and decrease of the share of credits to the economy and government).

Another component of inflation has been a financing of budget deficit through the credits of NBK and/or additional issue of money.

The co-ordinated policies of the National Bank and the Ministry of Finance were targeted at financing budget deficit from internal and external sources. Therefore, the financing of the budget deficit through the NBK's credits decreased from 42.3% in 1994 and 62.5% in 1995 to 12.5% in 1996.

In 1997, the NBK granted the Kazakhstani Ministry of Finance US $31.1 million credit to finance the budget deficit pursuant to the Law "On the Republican Budget for 1997". It was US $30.5 million less than that in 1996. By the end of 1997, the money base grew by over 40% up to US $1.5 billion.

This year, the government gave up taking direct loans from the NBK, planning to cover the budget deficit from increasing domestic borrowings (government T-bills), decreasing the inflation rate and more efficient management of state property.

An official refinancing rate has been set up by the NBK and depends on the general money market conditions, loan supply and demand, real inflation and inflationary expectations. In the Republic of Kazakhstan the rate is closely connected with the yields of government T-bills. The NBK's refinancing rate decreased from 35 % to 18.5 % over 1997.