The tenge strengthened, yet money keeps losing value: how Kazakhstan’s central bank fights and feeds inflation

KZT 447.73: an uneven strengthening

The official rate for 4 October is KZT 447.73 per US dollar. The tenge strengthened by 4.6% during September and ended the month near 440.49, but the official rate then jumped from 441.91 to 447.73 on 3 October. The dollar gained 1.32% over one week, while remaining about 1.78% cheaper over the month.

One exchange-rate print cannot prove policy success or failure. The National Bank said it conducted no currency interventions in September, but in its role as pension-asset manager it bought $986 million on the exchange, about 9.4% of monthly turnover. That was real foreign-currency demand. Its impact on tenge liquidity depends on whether the bank sterilised the corresponding money through other operations.

Inflation fell but remains almost twice the target

Annual inflation slowed from 9.8% to 9.3% in September. Food prices rose 8.5%, non-food goods 11% and services 8.9%. This is an improvement, but the National Bank’s target is 5%. The gap is 4.3 percentage points, and actual inflation is 1.86 times the target.

Meanwhile, the bank has cut its base rate three times since June: from 18% to 17%, then 16.75% and 16.25%. The real rate remains positive, yet easing began before inflation returned to target. That is the first tension: the regulator says demand must be restrained while lowering the price of money for banks.

Modern Money Mechanics: a loan creates a deposit

The phrase “a bank creates money out of thin air” sounds provocative, but it describes a precise accounting operation. A bank does not take KZT 10 million from a vault or transfer a saver’s existing deposit to the borrower. When it grants a loan, it expands both sides of its balance sheet at the same time:

The first entry creates a new bank deposit that can be spent. Repayment of principal destroys that part of the money stock. Interest is income for the bank and an expense for the borrower; it is not another newly created principal amount.

The Federal Reserve Bank of Chicago’s historical workbook Modern Money Mechanics illustrated this balance-sheet logic with T-accounts. Its old mechanical “money multiplier” sequence should not be applied literally to today’s system. The Bank of England explains that lending creates deposits in practice, while capital, liquidity, profitability, borrower demand, regulation and central-bank monetary policy limit how much banks can lend.

What the official NBK numbers show

According to the NBK’s monetary aggregates, at the end of August 2026:

• the monetary base was KZT 15.788 trillion;
• cash M0 was KZT 4.837 trillion;
• broad money M3 was KZT 54.995 trillion;
• M3 minus M0 was KZT 50.158 trillion, meaning 91.2% of broad money existed in non-cash form;
• M3 was 3.48 times the monetary base.

This does not mean that every reserve tenge automatically multiplied exactly 3.48 times. The ratio is the outcome of the whole system: bank loans and deposits, government and NBK operations, foreign-exchange flows, asset purchases and debt repayments. It does show why the everyday picture of money as mainly printed notes is wrong. Most money is an entry in an account and a liability of a bank.

Over one year, M3 rose from KZT 47.618 trillion to KZT 54.995 trillion, or 15.49%. The monetary base rose from KZT 15.068 trillion to KZT 15.788 trillion, or 4.78%. In absolute terms, broad money added KZT 7.376 trillion, while the base added KZT 0.720 trillion. This is neither a fixed multiplier nor proof of a single cause of inflation. It does demonstrate that bank money can expand much faster than cash and reserves.

August: KZT 3.86 trillion issued, KZT 575.85 billion added to the loan stock

According to the NBK’s official banking-sector credit table, banks issued KZT 3.859 trillion of new loans during August. That is a gross flow: borrowers were also repaying old debt, while banks wrote off and revalued claims.

The net change in outstanding credit therefore gives a clearer second measure. The loan stock rose from KZT 45.539 trillion on 1 August to KZT 46.115 trillion on 1 September: an increase of KZT 575.85 billion, or 1.26% in one month. Within that total:

• household credit increased by about KZT 322.26 billion;
• business credit increased by KZT 253.59 billion;
• since the beginning of 2026, the total loan stock increased by KZT 2.828 trillion, or 6.53%.

This is the daily cycle of money creation and destruction in practice: a new loan creates a deposit, spending transfers it between banks, and repayment of principal extinguishes deposit money. Gross issuance of KZT 3.859 trillion and net growth of KZT 575.85 billion do not conflict; their difference reflects repayments and other balance-sheet changes.

One more figure guards against an oversimplified story. Outstanding credit increased in August, while M3 fell from KZT 55.784 trillion to KZT 54.995 trillion, a decline of about KZT 789.16 billion. Not every change in M3 can therefore be assigned directly to a new loan. Repayments, government and foreign-exchange operations, and shifts between instruments and sectors occur at the same time. The credit-creation mechanism is demonstrable, but its link to one month’s inflation is not a one-for-one equation.

Why this still falls within the NBK’s responsibility

An individual bank decides whom to lend to, but public institutions set the system’s rules and price. The NBK sets the base rate, manages liquidity and reserves, conducts foreign-exchange operations and influences funding costs. Prudential capital and risk requirements are set by Kazakhstan’s Agency for Regulation and Development of the Financial Market and the NBK within their respective mandates.

The precise conclusion is: commercial banks create new deposit money when they lend, while the NBK sets the monetary environment in which that process accelerates or slows. “Out of thin air” means that the bank did not transfer a previously accumulated deposit to the borrower. It does not mean that wealth was created from nothing: an equal debt, default risk, and capital and liquidity requirements arise at the same time.

Where responsibility lies

It would be inaccurate to blame every price increase on the central bank. Fiscal spending, tariffs, imports, the exchange rate, harvests, competition and productivity all matter. Prudential bank supervision also involves Kazakhstan’s Agency for Regulation and Development of the Financial Market. But the National Bank controls the price of liquidity, the monetary base and currency operations, and owns the inflation target. It cannot treat credit growth as someone else’s problem.

Our editorial criticism is specific: inflation control should be judged through prices, M3, credit and real output together, rather than a high policy rate or one favourable month for the tenge. If monetary claims grow by about 15% while the price target is 5%, the regulator should explain what additional production will absorb the difference.

Is this an MMM-style pyramid

Legally and economically, the National Bank is not MMM. MMM was a fraudulent pyramid that paid earlier participants with money from new participants. A national currency is legal tender supported by a tax system, assets, reserves and the country’s economy.

The harsh analogy has a measurable core, however. When new money and credit grow faster than production, later holders of the currency pay through lost purchasing power. Value is redistributed towards those who receive new money earlier. That does not make a central bank a pyramid, but it demands equally strict transparency: who creates money, who receives it, what is produced in return and why the public should trust the 5% target.

Financial literacy begins with those questions. Discussing only today’s dollar rate is like watching the speedometer without opening the bonnet.

Cover: Shanraq.org editorial illustration.

Sources: National Bank official exchange rate, Bureau of National Statistics inflation release, National Bank credit statistics, National Bank currency-market operations, Shanraq.org analytics