Money-credit policy of the National Bank of Kazakhstan

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Money-credit policy of the National Bank of Kazakhstan

Almaty 2010

Introduction

The basis for the development and a reliable, stable functioning of the banking system is the formation of a flexible mechanism for monetary policy - monetary economy that allows the state to effectively influence economic activity, control over the activities of banking institutions to stabilize the currency.

Endowed with state emissions law of the National Bank is the conductor of the national policy of economic stabilization, commodity and cash balance. The transition to a market economy requires more efficient and effective implementation of monetary policy at the macro level.

Monetary policy at the macro level action-oriented activities of the National Bank (under the Ministry of Economy and Finance and, if necessary, and other central agencies) to implement national goals. The main object of monetary aggregate performs cash and non-money in the economy. The ultimate goal of this regulation by the National Bank is to provide a commodity-money balance in the economy, stimulating economic growth, stability of national currency, debt settlement.

According to established practice, the National Bank of Kazakhstan annually develop the main directions of monetary policy over the next 3 years, which define targets for inflation and measures of monetary policy to achieve them. Identification of strategic policy directions for the medium term predictability of policies of the National Bank of Kazakhstan and reduces the uncertainty associated with financial market participants in the direction of its development.

In 2007, the tasks facing the National Bank of Kazakhstan, was complicated by a high degree of uncertainty prospects of the world financial market and, consequently, the domestic economy. In high risk of further deterioration in global financial markets, central banks of the major developed countries have begun to help its banking system to stabilize the situation.

In 2007, the annual inflation (December compared with December of previous year) in the Republic of Kazakhstan amounted to 18,8% (maximum level over the past 7 years). Specificity of the moment is that in the face of increasing inflationary pressure and deterioration in the financial market to the National Bank of Kazakhstan, like other central banks, there was a dilemma. On the one hand, it is necessary to achieve price stability and, on the other - the stability of the financial system to preserve the conditions for further economic growth.

Under these conditions the National Bank of Kazakhstan has decided to develop the monetary and credit policy for two years in advance, that is, 2008-2009. In this case, in addition to implementing the main objective, special attention is given to a package of measures to ensure the stability of the banking system. As the reduction of uncertainty the National Bank of Kazakhstan intends to return to the practice development of the monetary and credit policy for three years.

Features of the development of Kazakhstan's economy in recent years

The financial turmoil in the global economy has been demonstrated for the economy of the Republic of Kazakhstan external risks. The fundamental features of economic development that evolved over the past few years have become one of the main factors of vulnerability. Income of primary industries, external borrowing by banks, government spending continued to contribute to overheating of the economy and growth in aggregate demand. Limited instrument for investing in an objective inability of the economy to quickly meet the demand for infrastructure services and real estate in actively growing demand has led to overheating of the real estate market and increase profitability in the construction sector and other services. The real estate market has become the most attractive for investment.

The growth of the financial sector of Kazakhstan's economy in recent years, accompanied by a significant accumulation of risks in the banking system. Tenge, improving sovereign credit rating of the Republic of Kazakhstan and the ratings of domestic banks, investment attractiveness of the banking sector contributed to the expansion of domestic banks to foreign capital markets. While the growth of external borrowing and high rates of increase in lending to provide appropriate quality of loan portfolio, however, the potential risk of deterioration in asset quality has not been adequately evaluated.

Gushing lending banks of the construction industry and real estate market has caused on the one hand, further price increases in the real estate market and the increasing vulnerability of the banking sector credit risks. On the other hand, the construction sector has become almost totally dependent on bank financing.

Over the years, the National Bank of Kazakhstan and the Republic of Kazakhstan Agency for regulation and supervision of financial markets and financial organizations took measures to minimize the associated risks in the banking system. In particular, take steps to regulate the quality of loan portfolio, improve the mechanism of minimum reserve requirements, has developed new requirements aimed at a more adequate assessment of credit risk, the formation of provisions and increase the capital of financial institutions, impose restrictions on the inflow of foreign borrowing.

However, emerged on the global financial market problems have led to the manifestation of accumulated risks of the banking system and increase the vulnerability of national economies to external financial shocks. Kazakh banks, for which external financing is an important source of replenishment of the resource base, faced with a lack of current liquidity. Reduction of bank financing led primarily to a decline in construction, as well as reduced activity in other industries.

Reprising of risk, difficulties with funding in the financial system led to a decrease in the international rating agencies Standard & Poor's and Fitch's sovereign credit rating of the Republic of Kazakhstan, as well as ratings of a number of domestic banks. Nevertheless, a significant slowdown in the economy until late 2007 did not hap

monetary policy bank national

1. The essence of monetary policy

1.1 Money-credit policy

Monetary (or monetary) policy - a policy of the state, affects the amount of money in circulation in order to ensure price stability, full employment and growth in real output. Implementing monetary policy the National Bank.

Impact on macroeconomic processes (inflation, economic growth, unemployment) is carried out by monetary authorities.

Normally, monetary policy of the Central Bank aims to achieve and maintain financial stability, primarily the strengthening of the national currency and ensuring the sustainability of balance of payments.

Monetary control - a set of specific activities of the central bank to change money in circulation, the volume of loans, interest rates and other indicators of monetary and capital market lending.

Monetary policy is an integral part of a national economic policy. Government economic policy should include measures to address the problems in each block. The Central Bank does its part - monetary policy, he is responsible for its implementation.

The fundamental objective of monetary policy is to help the economy to reach a total production level, characterized by full employment and price stability. Monetary policy is a change in money supply in order to stabilize aggregate output (steady growth), employment and price levels.

State regulation of the monetary sphere may be carried out successfully only if the State through the central bank can effectively influence the extent and nature of private institutions as well as in developed market economies is the latter are the basis for the entire monetary system.

Monetary policy in industrialized countries is considered as a tool for «fine tuning» of economic conditions, both operational and flexible addition of fiscal policy. The current world practice shows that a monetary policy affects the state on money supply and interest rates, and they, in turn - for the consumer and investment demand.

Unregulated activities of commercial banks may lead to cyclical fluctuations in business activity, i.e. in periods of inflation to their advantage to increase the money supply, and during the Depression - to reduce, thus exacerbating the crisis. Therefore, a balanced state policy of regulating the currency. This role is the main coordinating and regulatory body of the whole monetary system of the country carries out the central (issuing) bank.

The main task of monetary policy the central bank - to maintain a stable purchasing power of the national currency and ensuring the flexible system of payments and settlements. At the same time the central bank's policy is one of the most important parts of regulating the economy of the state.

It should be noted that with the help of credit control the state seeks to alleviate the economic crisis, to keep inflation in order to maintain the conditions the state is using credit to stimulate investment in various sectors of the economy.

Source for defining the objectives of monetary and credit policy is the issue of subordinated bonds (subordination) of the various components of economic policy.

It is important to clarify the definition of basic concepts. It is traditional to use the term «monetary policy». Is it, however, the concept of «credit» a simple application to the concept of «money» or the concept has its own content? Is it true so call the considered policy of monetary or should be talking about the monetary and credit policy as relatively independent components of economic policy? To answer this question it is necessary to compare the targets and means of achieving them within the framework of monetary and credit policy components.

The essence of the problem of determining the objectives of monetary policy is reduced to the identification of the specific way in which it provides a monetary policy (to ensure) progress towards the desired result - price stability.

The aim of monetary policy is to ensure that the economy is necessary and sufficient money supply. Another possible definition, virtually synonymous with the previous: The goal of monetary policy is to eliminate the excess or shortage of money in terms of economic needs.

The aim of monetary policy is to regulate the availability of credit on the basis of the objectives of sustainable economic growth. Credit price of money can be controlled through the supply of money. Thus governed by and availability of the loan.

In the monetary policy interest rate on loans (refinancing rate) should provide relief in the form of achieving a certain level (of growth, reduce the amount of) money supply. For monetary policy the main thing - the availability of credit, money supply directly is not the purpose of this policy.

Arsenal of tools of monetary policy is much richer and includes interest rates. Solutions in the field of monetary policy on the economy-wide level may deal exclusively with interest rates.

Solution in one area of the monetary sphere affects all other areas. In connection with this fundamental choice between cash, credit and monetary policy should be conducted on a competitive basis, and the quantitative parameter within the chosen policy is set on the basis of compromise. With the policy chosen by the parties concerning the traffic control cost in the form of money on market principles, is dominant. The other components are subordinate subordinates.

The latter situation can be illustrated.

Suppose a decision to hold a softer policy. The refinancing rate was reduced from level to level P0 P1. If this decision would not receive adequate measures in the field of monetary policy, ie If the supply curve (S) will remain the same and the money supply will be maintained at the initial level Q0, economic entities, including banks, will suffer lack of liquidity, which is why interest rates on loans in the market will remain basically the same, and the problem mitigate the credit policy will be decided purely nominally, in the form of good wishes. At the same time will be used non-market channels of access to credit for the declared more favorable prices.

Nature of the interaction of the various parties of economic regulation pertaining to the monetary sphere is presented in free form in the table.

Monetary policy is based on the principles of monetarism and has several advantages over fiscal policy. First of all, it has the agility and flexibility, as well as carried out by the Central Bank, rather than by Parliament, it is largely insulated from political lobbying.

Strengths of monetary policy:

* Speed and flexibility. Compared with fiscal policy, monetary policy can change quickly.

* Weak dependence on political pressure. By its very nature, monetary policy is softer and more conservative politically than fiscal policy. Changes in public spending directly affects the distribution of resources, and tax changes, no doubt, could have far-reaching political implications. Monetary policy, on the contrary. Acts thinner, and therefore it seems more acceptable politically.

* Monetarism. Most economists believe how fiscal and monetary policy effective tools for stabilizing, there are monetarists, who believe that the change in money supply - a key factor determining the level of economic activity and fiscal policy is relatively ineffective.

Negative aspects of monetary policy are that it provides only an indirect impact on commercial banks in order to regulate the dynamics of money supply and therefore cannot directly force them to reduce or extend credits.

Shortcomings and challenges of monetary policy:

* Cyclical asymmetry, i.e. If a policy of dear money, it will be reached such a point where banks are forced to limit the amount of loans, which means limiting the supply of money. While the easy money policy can provide the necessary reserves to commercial banks, i.e. opportunity to provide loans, but it is unable to guarantee that the last really will be given loans and money supply increase. The population may also disrupt the intentions of the Central Bank. Money to buy bonds from the population, a population can be used to repay existing loans. This cyclical asymmetry is a serious obstacle to monetary policy only during a deep depression. In normal times increase in excess reserves is to provide additional loans and thereby increase the money supply.

* Changing the velocity of money. So, in terms of overall monetary costs can be considered as the money supply multiplied by the velocity of money. In this regard, some Keynesians believe that the velocity of money tends to vary in the opposite direction to the supply of money than eliminate changes in the latter caused by monetary policy. In other words, during inflation, when money supply is limited to the policy of the Central Bank, the velocity of money tends to increase. Conversely, when taken policy measures to increase the supply of money during the recession velocity of circulation is likely to fall.

* Impact of investment, then there is action in monetary policy can be complicated and even temporarily hampered by adverse changes in the location of the demand curve for investment. For example, the policy of narrowing the creditworthiness of banks, aimed at raising interest rates may have little impact on investment spending, if both the demand for investment due to business optimism, technological progress and expectations for the future of higher prices for capital increases. In such circumstances, to effectively reduce the total cost, monetary policy must raise interest rates very highly. Conversely, a serious recession could undermine confidence in entrepreneurship, and thereby negate the whole policy of cheap money.

In implementing monetary policy, influencing the lending activities of commercial banks and directing the management to increase or decrease in credit to the economy, the central bank achieves a stable development of domestic economy, strengthening monetary, and balance of internal economic processes. Thus, the impact of the credit can gain a better understanding of strategic development objectives of the entire economy as a whole. For example, a lack of business free cash flow makes it difficult for commercial transactions, domestic investment, etc. On the other hand, the excess money supply has its drawbacks: the depreciation of money, and, consequently, lower living standards, deteriorating foreign exchange situation in the country. Accordingly, in the first case, monetary policy should be aimed at increasing lending activity of banks, and in the second case - on its cut, the transition to a policy of «dear money» (restriction).

With the help of monetary government seeks to alleviate the economic crisis, to keep inflation in order to maintain the conditions the state is using credit to stimulate investment in various sectors of the economy.

State regulation of the monetary sphere may be carried out successfully only if the State through the central bank can effectively influence the extent and nature of private institutions as well as in developed market economies is the latter are the basis for the entire monetary system. This regulation is carried out in several interrelated ways. State control over the banking system is intended to strengthen the liquidity of credit and financial institutions, i.e. their ability to promptly meet the demands of depositors. This is primarily due to accounting or discount policy, as well as establishing norms of mandatory bank reserves. Public debt management is the direction of government regulation in conditions of chronic budget deficits, the huge increase in public debt, which dramatically increases the influence of public credit for the loan market. To this end, the central bank uses various methods of government public debt: buying or selling government bonds, bond price changes; vary the conditions of their sale, a variety of ways increases the attractiveness of the latter to private investors.

It should be noted that monetary policy is implemented as an indirect (economic) and direct (administrative) methods of exposure. The difference between them lies in the fact that the Central Bank either has an indirect effect through the liquidity of credit institutions, or sets limits on the quantity and quality of banks.

Thus, in concluding this chapter, the following conclusions. Monetary policy - a key method of state regulation of social reproduction to ensure the most favorable conditions for the development of a market economy. The main goal of monetary policy is to help the economy in achieving volume production, characterized by full employment, absence of inflation and growth.

1.2 Instruments of credit - monetary policy

Refinancing of commercial banks

The tools of monetary policy are, first of all change refinancing, changes in reserve requirements, open market operations with securities and foreign currencies, as well as the introduction of credit restrictions.

The term «refinancing» means the receipt of funds by credit institutions from the central bank. The Central Bank may grant loans to commercial banks and rediscount securities held in their portfolios (usually bills).

Rediscount bills of exchange has long been one of the main methods of monetary policy of central banks of Western Europe. Central banks have certain requirements to have a bill discounted, most of which was the reliability of the debt obligation.

Bills of exchange rediscount rate rediskontirovaniya. This bet is also known as the official discount rate, it is usually different from the rate of the loan (refinance) a negligible amount in the smaller side. The central bank buys the debt at a lower price than the commercial bank.

In case of increase of central bank refinancing, commercial banks will seek to compensate for losses caused by its increase (appreciation of credit) by raising interest rates on loans provided by the borrowers. Ie change in accounting (refinancing) rate directly influences the change in rates on loans to commercial banks. The latter is the main goal of this method of monetary policy the central bank. For example, raising the official discount rate in the period of increasing inflation causes an increase in interest rates on credit operations of commercial banks, which leads to their reduction, as there is appreciation of the loan, and vice versa.

We see that the change in official interest rates affects the credit sphere. First, the difficulty or facilitate opportunities for commercial banks to obtain credit from the central bank influences the liquidity of credit institutions. Secondly, the change in official rates mean more expensive or cheaper loans from commercial banks for customers, since there is a change in interest rates on active lending operations.

Also from the official central bank rate means the transition to a new monetary policy that makes commercial banks to make the necessary adjustments in their activities.

The disadvantage of refinancing with the conduct of monetary policy is that this method affects only commercial banks. If refinancing is used little or not implemented at the central bank, then this method is almost completely loses its effectiveness.

In addition to establishing formal refinancing rates and rediskontirovaniya central bank sets the interest rate on collateral loans, ie credits granted under any mortgage, in which were usually securities. Please note that bail may be taken only those securities whose quality is unquestionable. In practice, foreign banks, as these securities are used tradable government securities, first-class commercial bills and bankers' acceptances (their value must be expressed in national currency and maturity - not more than three months), as well as some other types of debt, defined central banks.

The Central Bank policy interest rate (which is still sometimes called the discount policy), acting as a «lender of last resort.» It represents a loan the most financially stable banks experiencing temporary difficulties. Federal Reserve (Fed) sometimes makes long-term loans on special terms. It may be small loans to banks to meet their seasonal cash needs. Sometimes it also granted loans to banks, which find themselves in a precarious financial situation and need help to clean up its balance sheet.

When a bank loans money, it takes the Fed issued to a debt, usually secured by government securities. Upon return of the loan the Fed recover interest payments, whose size is determined by the interest rate.

Giving a loan, the Fed increases the reserves of commercial banks, and to maintain it does not need the required reserves, ie all the loan increases the excess reserves of the bank, its ability to lend.

If the Fed reduces interest rates, it encourages banks to acquire additional reserves by borrowing from the Fed. In this case, we can expect an increase in money supply. On the contrary, increasing the discount rate corresponds to the aspirations guiding monetary authorities to limit the money supply.

Changing the discount rate, we can only expect appropriate action banks. You cannot force the banks to take credit for the amount needed State. In its discount policy of the central bank can only play a passive role. Only in open market operations the central bank can play an active role. But never underestimate the role of interest rates: changing it, the central bank has great power to have restrictive effect on banks. And yet on the effectiveness of policy interest rate is after surgery

The policy of mandatory reserves

Currently, the minimum reserves - it is the most liquid assets, which are required to have all credit institutions, as a rule, either in the form of cash to banks, either in the form of deposits at the central bank or other highly liquid forms, defined by the central bank. The ratio of reserve requirements is set in law the percentage of the amount of minimum reserves to an absolute (volume) or relative (the increment) parameters of passive (FDIC) or active (Credits) operations. Use of standards can have a total (establishing the total of obligations or loans) and selective (to their particular part of) the nature of exposure.

Minimum reserves serve two main functions.

Firstly, they are as liquid reserves serve as collateral liabilities of commercial banks on deposits of their customers. Periodic variation of the required reserves of the central bank will support the liquidity of commercial banks at the minimum level depending on the economic situation.

Second, the minimum reserves are a tool used by the central bank to regulate the money supply in the country. By changing the standard of the reserve's central bank regulates the scope of active operations of commercial banks (mainly the amount of loans granted by them), and therefore the exercise, the deposit issue. Credit institutions can extend the loan operations, if their required reserves at the central bank exceed the set standard. When the amount of money in circulation (cash and noncash) exceeds the required demand, the central bank pursues a policy of credit restriction by increasing the standards of deduction, ie percent reserve funds at the central bank. He thereby was forcing banks to reduce the amount of active operations.

Change in reserve requirements affects the profitability of lending institutions. So, in case of increase in reserve requirements is as if the shortfall in revenue. Therefore, according to many Western economists, this method is the most effective anti-inflationary tool.

The disadvantage of this method lies in the fact that some institutions, mainly specialized banks with minor deposits, are in an advantageous position compared with commercial banks that have large resources.

In the last year or two decades have seen a decrease in the role of this method of monetary control. This is evidenced by the fact that everywhere (in Western countries) there is a reduction of the required reserves, and even its abolition in some types of deposits.

Fall in the rate of cash reserves would increase the money multiplier and, hence, increase the amount of the money supply, which can maintain a certain amount of reserves. If the central bank increases the rate of required reserves, this leads to a reduction in excess reserves of banks and animated reducing money supply. This process happens very quickly. For, once signed by the decision to increase the reserve rules, each bank immediately detects the failure of its reserves. He immediately sells some of its securities, and require the return of loans.

This instrument of monetary policy is the most powerful, since it affects the foundations of the entire banking system. He is so powerful that, in reality it is used once every few years rather than every day, as in the case of operations on the open market

Open market operations

Gradually, the above two methods of monetary regulation (refinance and compulsory redundancy) have lost their priority on the importance of value, and the main instrument of monetary policy became the intervention of the central bank, known as open market operations.

This method consists in the fact that central bank purchases and sales of securities in the banking system. Purchase of securities from commercial banks increases the resources of the latter, respectively, increasing their lending capacity, and vice versa. Central banks periodically make changes to this method of credit control, change the intensity of their operations, their frequency.

Open market operations were first actively used in the U.S., Canada and Britain due to the presence in these countries, the developed market securities. Later, this method of credit control has been universally used in Western Europe.

According to the shape of the market operations of central bank securities may be direct or inverse. Direct operation is a normal purchase or sale. Feedback is the buying and selling securities with the commission mandatory repurchase at a predetermined rate. Flexibility of inverse operations, the softer the effect of their influence, give the popularity of this instrument of regulation. Since the proportion of inverse operations of central banks of leading industrialized nations on the open market reaches from 82 to 99,6%. «If you look, you can see that by its very nature, these operations are similar to refinancing a mortgage securities. The central bank offers to commercial banks to sell his securities on the terms determined by auction (competitive) bidding, with the obligation to sell them back in 4-8 weeks. Moreover, interest payments, «dashing» for these securities while they are owned by the central bank will be owned by commercial banks.

Thus, open market operations as a method of monetary management differ significantly from the previous two. The main difference - it is more flexible regulation, since the volume of purchases of securities, as well as used in this interest rate may change on a daily basis in accordance with the direction of central bank policy. Commercial banks, given the specified feature of this method should closely monitor its financial position, while preventing the deterioration of liquidity.

Credit crunch

This method of credit control is a quantitative limitation of the amount of loans. Unlike the above methods, regulation, quotas credit is a direct method of influence on banks' activities. Also, credit constraints lead to the fact that businesses borrowers fall into unequal position. Banks tend to lend mainly to its traditional customers, usually large businesses. Small and medium firms are the principal victims of this policy.

It should be noted that, while ensuring support of the policy of deterrence banking and moderate growth of money supply, the government reduces economic activity. Therefore, the method of quantitative restrictions was used not as active as before, but in some countries there has been canceled.

Also, the Central Bank may set different standards (coefficients), which commercial banks are required to maintain the required level. These include capital adequacy ratios of commercial bank's balance sheet liquidity ratios, standards for maximum risk per borrower, and some complementary guidelines. The above standards are mandatory for commercial banks. Also, the Central Bank may establish a non-binding, so-called evaluative standards which commercial banks are encouraged to support at the proper level.

In case of violation by commercial banks banking laws, rules, banking operations, other serious shortcomings in the work that leads to infringement of the rights of their shareholders, depositors, customers, the central bank may apply to them the most severe administrative punishment, until the liquidation of banks.

Obviously, the use of administrative action by the central bank towards commercial banks should not be systematic, and applied in the order of only internally measures.

In addition to the above four basic tools of monetary policy, the state also sometimes uses a secondary selective regulation, which refers to the stock exchange, consumer credit and exhortations.

In order to avoid excessive speculation in the stock market, the state sets prescribed by law «margin», ie percentage of the selling price of a security, which must be paid when buying or cash or, in securities, while another part can be written IOU. Margins improve if they wish to limit speculative buying of stocks and lower if you wish to revive the stock market.

If the state wants to avoid increasing the money supply, it can by all means possible to beat the desire to take a consumer credit: raise the interest rate on it, or prescribe to make interest-free contribution to the central bank is buying the credit card.

State represented by the central bank can affect the banks through verbal persuasion. There may be political statements, the general solutions, simply calls for a particular action. State appeals to the sense of public duty bankers. In its general form can be made warnings about the availability of credit in the future. Sometimes exhortations have had some impact.

Thus, the instruments of monetary policy are, first of all change in refinancing, changes in reserve requirements, open market operations with securities and foreign currencies, as well as the introduction of credit restrictions.

Gradually, the above two methods of monetary regulation (refinance and compulsory redundancy) have lost their priority on the importance of value, and the main instrument of monetary policy became the intervention of the central bank, known as open market operations.

This method consists in the fact that central bank purchases and sales of securities in the banking system. Purchase of securities from commercial banks increases the resources of the latter, respectively, increasing their lending capacity, and vice versa. Central banks periodically make changes to this method of credit control, change the intensity of their operations, their frequency.

Open market operations were first actively used in the U.S., Canada and Britain due to the presence in these countries, the developed market securities. Later, this method of credit control has been universally used in Western Europe.

According to the shape of the market operations of central bank securities may be direct or inverse. Direct operation is a normal purchase or sale. Feedback is the buying and selling securities with the commission mandatory repurchase at a predetermined rate. Flexibility of inverse operations, the softer the effect of their influence, give the popularity of this instrument of regulation. Since the proportion of inverse operations of central banks of leading industrialized nations on the open market reaches from 82 to 99,6%. «If you look, you can see that by its very nature, these operations are similar to refinancing a mortgage securities. The central bank offers to commercial banks to sell his securities on the terms determined by auction (competitive) bidding, with the obligation to sell them back in 4-8 weeks. Moreover, interest payments, «dashing» for these securities while they are owned by the central bank will be owned by commercial banks.

Thus, open market operations as a method of monetary management differ significantly from the previous two. The main difference - it is more flexible regulation, since the volume of purchases of securities, as well as used in this interest rate may change on a daily basis in accordance with the direction of central bank policy. Commercial banks, given the specified feature of this method should closely monitor its financial position, while preventing the deterioration of liquidity.

2. Legal Status of the National Bank of the Republic of Kazakhstan

2.1 Status of the National Bank

Legal status and functions of the Bank are determined by the laws «On National Bank of the Republic of Kazakhstan» and «On banks in the Republic of Kazakhstan.» In accordance with the law «On National Bank of the Republic of Kazakhstan noted the independence of the National Bank of administrative and executive authorities, accountable only to its Supreme Council and President of the Republic of Kazakhstan, which also indicated that the National Bank of Kazakhstan is the central bank of Kazakhstan and is the top level Banking System of the Republic of Kazakhstan»

The main purpose of the National Bank is price stability in Kazakhstan. To realize the main purpose of the National Bank shall have the following tasks:

· Design and conduct of monetary policy of the state

· Operation of payment systems

· Implementation of currency regulation and currency control

· Promoting financial system stability.

National Bank in accordance with its objectives the following main functions:

· Implementation of the state of monetary policy in the Republic of Kazakhstan;

· Implementation issue banknotes and coins on the territory of the Republic of Kazakhstan;

· To function as a bank of banks;

· To function as a bank, financial advisor, agent of the Government of the Republic of Kazakhstan and other services to government and other public bodies in agreement with them;

· The orderly functioning of payment systems;

· Implementation of currency regulation and control in the Republic of Kazakhstan;

· Management of gold and assets of the National Bank;

· Exercise control and supervision of financial institutions, as well as regulation of their activities on matters within the competence of the National Bank and others

· Trust management by the National Fund of the Republic of Kazakhstan.

National Bank of Kazakhstan is the only authority in determining and implementing the state monetary policy of the country.

Monetary policy today is fully committed to achieving the primary objective - price stability, which ultimately helps to build confidence in the national currency, providing financial stability and, respectively - economic growth.

In accordance with the legislation of the National Bank is independent in choosing targets and instruments of monetary policy. At the same time, this independence does not mean that monetary policy is conducted in an isolated environment. The new software takes into account the economic policy of the Government, which ensures integrity and consistency of macroeconomic policies.

To achieve the goal, the National Bank uses the funds, that is, the tools of monetary policy include setting:

· Refinancing rate;

· Level of interest rates on major operations of monetary policy;

· Minimum reserve requirements;

· In exceptional cases, direct quantitative restrictions on the level and amount of certain types of transactions.

In order to implement monetary policy, the National Bank of Kazakhstan performs the following operations:

1) Granting of loans;

2) Acceptance of deposits;

3) Foreign exchange intervention;

4) Issue of short-term notes of National Bank of Kazakhstan;

5) Purchase and sale of government and other securities, including the right of redemption;

6) Rediscount of commercial bills and other transactions by the decision of the Board.

To reduce the rate of inflation National Bank this year, as before, continues to conduct «a tight monetary policy.» It includes the following groups of measures that reduce the inflationary pressure:

- Measures to increase rates of the National Bank (a policy of «dear money»);

- Measures aimed at removing the excess liquidity of banks;

- Measures for exchange rate policy.

Use of the National Bank of different instruments feeling the one, but many have no idea about the initial positions of banks at higher rates on loans, with an increase or decrease in rates, etc.

Almost all of changes in interest rate policy in the banking system are based on the introduction of the National Bank of Kazakhstan of an instrument of monetary policy, which is developed by 3 years in advance and subject to annual review. So do not be arhiekonomistom to possess a small set of knowledge for its own analysis, but only regularly visit the site of the National Bank www.nationalbank.kz and reading special literature, which has now been published in leading national and regional newspapers as well («Kazakhstan Pravda, northern Kazakhstan»,» Egemen Kazakhstan»,» Soltustіk ?aza?stan and others). On television broadcast transmission Territory of tenge»,» Business News»,» Economy and Business», where you can see and hear the opinions, forecasts of leading financiers, analysts and bankers.

In no case cannot believe the rumors, misinterpretation, and even more impossible to resist the panic, excitement.

Rumors tend to dissolving those who are in pursuit of profit, decided to take advantage of any situation. Even though the prevailing today in the financial market.

Of course, at this moment there is a certain panic in general. This echoes the U.S. mortgage crisis, fell deeply in our tightening of the mortgage (and other) loans and some suspension of the construction. This worldwide increase in grain prices due to the use of it to get hyped befouled (bioethanol, this produced at our complex, «Biochim») as an alternative to petroleum products, and also because of crop failures in many countries. This chaotic nature of the dollar, especially manifested in the holidays from 29 to 31 August, when the rate exceeds the limit in our area up to 145 tenge / $, and in Almaty, Karaganda and 160 tenge / $.

But if we analyze the facts of the past, then surely, and with the dollar, many «burned» by buying them at 130-140 m., again based on rumors that the course will continue to grow. However, today they can be purchased for 122.5 tenge. Therefore, we can not succumb to panic rumors, talk. This is also fraught with consequences, unnecessary spending and waste.

Self-respecting man should be more interested in economic terms, be able to analyze the situation, to build any predictions, comparing and aligning them with

the views and statements of leading analysts, respected financiers and bankers, and thus increase the economic literacy and culture in general.

2.2 Credit system and the monetary policy of the state

The fundamental objective of monetary policy is to help the economy to reach a total production level, characterized by full employment and price stability. Monetary policy is a change in money supply in order to stabilize aggregate output (steady growth), employment and price levels.

Unregulated activities of commercial banks may lead to cyclical fluctuations in business activity, and then eat in times of inflation to their advantage to increase the money supply, and during the Depression - to reduce, thus exacerbating the crisis. Therefore, a balanced state policy of regulating the currency. This role is the main coordinating and regulatory body of the whole monetary system of the country carries out the central (issuing) bank.

The main task of monetary policy the central bank - to maintain a stable purchasing power of the national currency and ensuring the flexible system of payments and settlements. At the same time the central bank's policy is one of the most important parts of regulating the economy of the state. In the second half of XX century has developed a «magic quadrangle» objectives of economic regulation: ensuring stable economic growth, a stable national currency, employment and balance of payments. In recent years, added to them the task of achieving ecological balance.

Initially, the main function of central banks was the implementation of emission of cash, at the present time, this feature gradually moved to the background, but we should not forget that cash are still the foundation on which rests the entire money supply, therefore the activity of the central bank to issue cash Money should not be less than prudent and thoughtful than any other.

In implementing monetary policy, influencing the lending activities of commercial banks and directing the management to increase or decrease in credit to the economy, the central bank achieves a stable development of domestic economy, strengthening monetary, and balance of internal economic processes. Thus, the impact of the credit can gain a better understanding of strategic development objectives of the entire economy as a whole. For example, a lack of business free cash flow makes it difficult for commercial transactions, domestic investment, etc. On the other hand, the excess money supply has its drawbacks: the depreciation of money, and, consequently, lower living standards, deteriorating foreign exchange situation in the country. Accordingly, in the first case, monetary policy should be aimed at increasing lending activity of banks, and in the second case - on its cut, the transition to a policy of «dear money».

With the help of monetary government seeks to alleviate the economic crisis, to keep inflation in order to maintain the conditions the state is using credit to stimulate investment in various sectors of the economy.

It should be noted that monetary policy is implemented as an indirect (economic) and direct (administrative) methods of exposure. The difference between them lies in the fact that the central bank, or has an indirect effect through the liquidity of credit institutions, or sets limits on the quantity and quality of banks.

It should be noted that with the help of credit control the state seeks to alleviate the economic crisis, to keep inflation in order to maintain the conditions the state is using credit to stimulate investment in various sectors of the economy.

Money supply in the money market plays an important role in the economy. This, in particular, follows from the known equation of exchange. Accordingly him a close correlation between the money supply, velocity of circulation of money, output and price level. But that shows western statistics:

«The level of money supply growth and the average price is almost linearly dependent with the ratio greater than 0.9 for all units in all countries with all the economies (in development).

Growth rate of money supply and real output are absolutely not linked, where growth in the money supply more than about 18% per year. In the countries with lower rates of monetary growth there is almost a linear relationship with a coefficient of about 0.1

Inflation and growth rate of real product is absolutely not related.»

It has already been mentioned dear money policy and the policy of cheap money (expansionist). Below we will see what it is and what the mechanism for its implementation is.

Suppose the economy was faced with unemployment and with lower prices. Consequently, it is necessary to increase the money supply. To achieve this goal apply a policy of cheap money, which consists of the following measures.

Firstly, the central bank to buy securities on the open market at the population and commercial banks. Secondly, it is necessary to decrease the discount rate and, thirdly, you need standards for accruals. As a result of these measures will increase the excess reserves of commercial banks. Since excess reserves are the basis for increasing the money supply by lending to commercial banks, then we can expect that the money supply in the country will increase. The increase in money supply will lower interest rates, investment growth and an increase in the equilibrium net national product. From the foregoing, we conclude that the scope of this policy is to make credit cheaper and easily accessible in order to increase aggregate spending and employment.

In a situation where the economy is facing excessive costs, which leads to inflation, the central bank should try to reduce overall costs by limiting or reducing the supply of money. To solve this problem, reduce the reserves of commercial banks. This is done as follows. The Central Bank should sell government bonds on the open market in order to cut the reserves of commercial banks. Then it is necessary to increase the reserve ratio, which automatically releases the commercial banks from excess reserves. The third measure is to raise interest rates to reduce the interest of commercial banks to increase their reserves by borrowing from the central bank. The above system of measures called the dear money policy. As a result of its banks find that their reserves are too small to meet the prescribed legal reserve ratio, that is, their current account is too large relative to their reserves. Therefore, to comply with the requirement for a backup rate of inadequate reserves, banks should keep their current accounts; refrain from issuing new loans, after the old ones paid. Consequently, money supply will decrease, causing an increase in the rate of interest, and the growth of the interest rate will reduce investment, reduce total costs and limiting inflation. The policy objective is to control money supply, i.e., reducing the availability of credit and increase its costs in order to reduce costs and curb inflationary pressures.

It should be noted strengths and weaknesses of the methods of monetary regulation in influencing the economy as a whole. In favor of monetary policy include the following arguments. First, the rapidity and flexibility compared with fiscal policy. It is known that the use of fiscal policy may be delayed for a long time because of the debate in the legislature. Is not the case with monetary policy The Central Bank and other regulators monetary sphere can make daily decisions about buying and selling of securities and thereby influence the money supply and interest rate. The second important aspect is the fact that in developed countries, this policy is insulated from political pressure, in addition, it is inherently softer than the fiscal policies and acts are thinner and therefore seems to be more acceptable politically.

But there are some negative points. Dear money policy, if its conduct is sufficient vigor, can indeed reduce the reserves of commercial banks to the point where banks are forced to limit the amount of credits. That means limiting the supply of money. Easy money policy can provide the necessary reserves to commercial banks, i.e. the possibility of granting loans, but it is unable to guarantee that the banks really will be given a loan and money supply increase. In such a situation of this policy will be ineffective. This phenomenon is called cyclical asymmetry, and it can be a serious obstacle to monetary authorities during the depression. In more normal times an increase in excess reserves is to provide additional loans and, thereby, to increase the money supply.

Another negative factor, seen by some neokeynsiantsami, is as follows. The velocity of money tends to vary in the opposite direction to the money supply, thereby inhibiting or eliminating changes in the money supply caused by the policy, that is when money supply is limited, the velocity of money tends to increase. Conversely, when taken policy measures to increase the supply of money during the recession, very likely falls in the velocity of money.