Main concepts of the Monetary PolicyMonetary policy occupies an important place in the life of society. Monetary policy is one of the four major macroeconomic instruments, based on the ability of the monetary system to influence the money supply and, accordingly, the interest rate, and through it on investment and real GDP. The goal of the monetary policy is to ensure stable economic growth, full employment of resources, stability of the price level, balance of payments equilibrium. Monetary policy is implemented by the central bank. However, the change in the supply of money in the economy occurs, because of the operations not only of the central bank, but also of commercial banks, as well as decisions of the non-banking sector (households and firms). Tactical goals of the monetary policy of the central bank can be: 1) control over the supply of money (money supply); 2) control over the level of the interest rate; 3) control over the exchange rate of the national currency. The instruments of the monetary policy are change in the norm of mandatory reserves; change in the discount rate of interest (refinancing rates); open market operations. History of the monetary policy of the republic of KazakhstanMonetary policy of Kazakhstan in its development has passed a number of important stages that reflect the key macroeconomic trends over the past twenty years. The directions of monetary policy were determined by the tasks of the National Bank aimed at reducing inflation, ensuring the stability of the national currency, and creating the conditions for the functioning of the financial system of the country for the relevant period of time. After gaining independence in 1991, Kazakhstan faced the task of changing the functioning of the economy, in connection with the transition from a planned system to market principles. Primarily, privatization, liberalization of pricing, and the creation of a competitive environment were required. The collapse of the USSR, the disruption of the economic ties that existed before, led to a deep crisis in almost all spheres of the country’s economy in the first half of the 1990s.In early 1992, measures were taken to move to market pricing. Conducted in the absence of a competitive environment, price liberalization in 1992 led to hyperinflation, a deterioration in the financial condition of enterprises, a reduction in production, a fall in real incomes of the population and stagnation of the entire economy. The level of inflation in Kazakhstan in 1992 reached a maximum value of 3060%. Although in subsequent years its rates declined, but remained at a high level: 2265% in 1993 and 1258% in 1994. The annual economic recession in 1991-1995 averaged 9.3%. Almost the payment turnover between enterprises destroyed, the amounts of non-payments reached significant volumes. New instruments were introduced, such as short-term notes of the National Bank. The notes of the National Bank became the main instrument of operative liquidity regulation. Nevertheless, the underdevelopment of the secondary securities market did not allow the National Bank to make full use of this instrument. Credit resources were placed by the National Bank through credit auctions and on a pawnshop basis. In 1997, auctions of credit resources ceased to be conducted, due to the sufficiency of resources in the banking system. The measures taken by the National Bank helped to reduce inflation from 60.3% in 1995 to 1.9% in 1998. In 1996-1999, the average annual production growth was 0.75%. The National Bank promoted the development of the infrastructure of the monetary and financial markets. The system of electronic over-the-counter market of government securities began to operate, allowing real-time sales transactions. By 1995, the National Bank had managed to curb hyperinflation by reducing the amount of money supply. For 1991-1999, classical instruments of the monetary policy of the central bank were gradually introduced into practice – the official refinancing rate, the minimum reserve requirements and open market operations, in particular, currency interventions and short-term notes transactions. The basic elements of the financial infrastructure were created and they led to favorable conditions for the further development of the economy.The role of the National Bank in the process of macroeconomic stabilizationThe macroeconomic environment in Kazakhstan in the period from 2000 to 2006 was developing under the influence of favorable internal and external factors. Positive trends in the world financial and commodity markets, as well as the consistent implementation of socio-economic reforms had an impact on the stabilization of the macroeconomic situation in the country. In 2000-2006, inflation was 6.4% -8.4%, while the average of annual real GDP growth was 10.3%. The growth of the Kazakhstan economy was greatly facilitated by the investment activity of domestic and foreign capital. There was a favorable pricing environment for the position of domestic exports (oil, gold, zinc, copper, lead and grain) against the backdrop of domestic macroeconomic stability. In these circumstances, the National Bank should, on the one hand, pursue a policy that restricts price growth, and on the other hand, implement a gradual easing of monetary policy in order to expand the money supply aimed at supporting economic growth and expanding production. Since 2004, the National Bank has started to define the basic guidelines of monetary policy for three years ahead with the annual specification of the parameters. Achieving macroeconomic stability made it possible to carry out forecasts and develop strategic directions for a longer period, taking into account the situation in the economy and financial markets.In order to reform the system of state regulation of the financial market, since 2004, the functions of supervision and regulation of the financial market have moved to a separately created agency – the Agency of the Republic of Kazakhstan for Regulation and Supervision of the Financial Market and Financial Organizations. The main goal of the National Bank is to ensure the stability of prices.Instruments of Monetary PolicyOfficial rates. With the aim of targeting second-tier banks to reduce loan rates, the National Bank maintained the refinancing rate slightly positive in real terms for a year and lowered official rates. Over the year (2015), the refinancing rate decreased from 18% to 14%, the rate for overnight loans – from 27 to 21%, the rate on repo transactions – from 23 to 19%. For the implementation of operations by the National Bank on discounting promissory notes since June 20, 2000, the official discount rate was introduced and set at 12.5%.Minimum reserve requirements. To ensure the balance of the money market and regulate the liquidity of banks from 01.05.00, the norm of banks’ mandatory reserves was reduced from 10 to 8% of the total deposit liabilities of the bank to non-bank legal and natural persons. Reducing the minimum reserve requirements did not lead to a weakening of the protection of the interests of depositors and creditors of banks, but, on the contrary, allowed banks to more effectively manage the funds raised and increase lending to the real sector of the economy.Open market operations. In order to regulate liquidity in the banking system and sterilize the money supply in 2015, the National Bank carried out the transactions in the open market for the purchase and sale of securities, to repurchase and reverse repurchase transactions. Loans of the National Bank. In 2015, the National Bank provided loans for KZT 1401 million, of which KZT 1311.2 million to second-tier banks, and KZT 89.8 million to organizations. To finance the gold mining industry – the “ABS Balkhash” enterprise, a consortium of banks has been established on the principles of syndicated bank lending. The National Bank assumed partial financing of this consortium (KZT 699.2 million or $ 4.9 million). In connection with the repayment by the National Bank of the debt to the EBRD, the loan was repaid by the National Bank of Kazkommertsbank OJSC as part of the EBRD loan for the SME development program. Based on the Consortium Agreement, this loan was reissued into a bank loan for $ 4.3 million. The granting of a special-purpose loan for building the reserve center of the KISC payment system was continued. The National Bank carried out work on the practical implementation of a system for the recalculation of bills. First-class issuers of promissory notes – CJSC NAK Kazatomprom and Kazakhtelecom OJSC were determined, General agreements on rediscounting promissory notes with 12 banks were concluded. As early as December 2015, 6 promissory notes of ZAO NAC Kazatomprom were redeemed for a maturity of up to 6 months at KZT7.1 million. The National Bank concluded an overnight loan agreement with 17 second-tier banks. The limits for obtaining overnight loans at the National Bank were reported to banks on a monthly basis, however, due to sufficient liquidity of the banking system in 2015, banks did not apply for an overnight loan. The return of credits was 238.2 million tenge. Monthly classification of the loan portfolio was carried out and provisions were created. More than 80% of borrowers who have overdue debts on bank loans of the National Bank are currently in liquidation procedure, or bankruptcy procedure was applied to them. Overdue debts on them totaled 4.7 billion tenge, the amount of debt on the main debt – 2.2 billion tenge. The borrowers returned unprofitable bank loans by 2.1 million tenge. In connection with the completion of the liquidation process, the overdue debt on 9 banks (KZT0.8 billion), which has a debt on bank loans of the National Bank, was canceled. In addition, the debts of the institutions of the Ministry of Internal Affairs were canceled by KZT 71.9 million. For all borrowers, the National Bank carried out claims and lawsuits.Monetary aggregatesThe behavior of monetary aggregates during the reporting period was due to the nature of past trends.The monetary base. The increase in the national currency of the National Bank of the United Kingdom by 37.6% to $ 2,093.9 million. However, the monetary base expanded only 5.7% to 134.0 billion tenge. This was due to the fact that, starting from the second half of the year, the National Bank intensified operations to sterilize excess liquidity. The growth in net international reserves of the National Bank was neutralized by an increase in the volume of short-term notes in circulation by 7.9 times (or by 43.0 billion tenge) and by an increase in the Government’s deposits by 2.3 times (or by 26.8 billion tenge). Money supply. The dynamics of the assets of the banking system was positive. Thus, net external assets of the banking system grew by 15.9% (or by $ 294.9 million), while internal assets of the banking system increased by more than 5.2 times (or by 71.3 billion tenge). The growth of domestic assets of the banking system was due to a significant increase in demand for other sectors of the economy by more than 1.8 times (or by KZT 137 billion) (despite a decrease in net claims to the Government of the banking system 26.9% and net other of the assets of the banking system – by 30%). All these factors contributed to an increase the amount of money supply by 45.9% to KZT 399.5 billion.A significant increase in the money supply led to an increase in the level of monetization of the economy (Example: from 13.6% in 1999 to 15.4% in 2000, it was the highest rate since Kazakhstan’s independence).Inflation targetingIn the mode of inflation targeting, the main goal of the central bank is medium-term inflation. To achieve this goal, it is necessary to establish intermediate (inflation forecast) and operational (target market rate) targets. An effective decision-making system contributes to the achievement of these targets.Establishment of the inflation targetIn international practice, the target parameter is set either by the central bank, or by the government, or jointly by the government and the central bank. The most common practice is the joint setting of the target by the central bank and the government. The advantage of this approach is to harmonize monetary policy measures with fiscal policy, which is important for achieving the goal. Within the framework of the inflation-targeting regime in Kazakhstan, the Board of the National Bank will set inflation targets. The Chairman of the National Bank will be personally responsible for achieving the inflation target. If the inflation targets are not achieved, the Chairman of the National Bank shall present a public report on the reasons for the deviations, as well as the timing of the return of the indicators to the target framework. At present, the main body that makes decisions in the field of monetary policy in Kazakhstan is the Board of the National Bank. The Board approves the state monetary policy, establishes the official refinancing rate, establishes standards for minimum reserve requirements, and considers lending to banks as the lender of last resort and others. As part of the transition to the inflation-targeting regime, was proposed to build a decision-making system as follows.The Board of the National Bank sets a target for inflation. A Monetary Policy Committee will be set up that determines the base interest rate, the rates for the main monetary policy operations, approves the state monetary policy to fulfill the goal set by the Board, makes decisions on other issues on the initiative of the Chairman of the National Bank. The Committee on Monetary Policy will include the Chairman of the National Bank and his deputies. A simple majority of the members of the Committee will adopt decisions of the Committee on Monetary Policy. The Committee on Monetary Policy should held meetings at least 12 times a year. The Committee on the money market will established to make operational decisions within the framework of the strategy set by the Monetary Policy Committee. The competence of this Committee will include the following issues:1) Assessment of the liquidity situation in the banking sector;2) Analysis of the current situation in the domestic and external financial markets;3) Determination of the volume of operations in the money and foreign exchange markets;4) The definition and approval of a list of monetary policy instruments, as well as a list of pledge assets for these instruments.ConclusionThe National Bank conducted analytical work on the selection of an adequate monetary policy regime, taking into account the specifics of the financial sector and the level of development of the economy of Kazakhstan. The most acceptable mode is inflation targeting, the features and advantages of which are a clear identification of the ultimate goal and priorities of monetary policy along with the “freedom of action” of the central bank in making decisions.The introduction of inflation targeting in Kazakhstan will be implemented in stages.At the preparatory stage, work will be carried out to expand the system of monetary and credit policy instruments and collateral for the operations of the National Bank, to build a system of analysis and forecasting for the short and medium term. In addition, a system of decision-making will be built, assuming full independence of the National Bank. Within the framework of communications, the strategy will aimed at increasing confidence in the monetary policy pursued by the National Bank, as well as shifting the priority of economic agents from the exchange rate to inflation. At the stage of introduction of inflation targeting, the National Bank will test the percentage channel for determining the operational goal. The communication strategy will focus on the formation and management of inflation expectations of economic agents. Thus, monetary policy until 2020 will be aimed at implementing a set of measures to move to the regime of inflation targeting. This regime of monetary policy will promote sustainable economic growth and contribute to the achievement of the country’s strategic goals of entering the top thirty of the most developed countries in the world.