March 14, 2016 / 12:05 PM / 4 years ago

UPDATE 1-Kazakh central bank keeps policy rate unchanged to support tenge

(Adds details, context)

ALMATY, March 14 (Reuters) - Kazakhstan’s central bank kept its main policy rate unchanged at 17 percent in a monthly review on Monday, saying the need to support the tenge currency after its sharp depreciation overweighed concerns about economic slowdown.

The bank will keep providing liquidity to local banks at 19 percent and pay 15 percent on money taken from lenders until the next review on May 5, it said in a statement.

The oil exporter abandoned its pegged exchange rate policy last August, letting the tenge lose nearly half its value against the dollar and prompting bank depositors to switch to foreign currency.

In an attempt to support the tenge, the central bank briefly halted liquidity provision late last year, letting overnight rates soar to triple digits.

It returned to the money market this year and resumed standby liquidity provision last month as pressure on the tenge eased thanks to oil prices bottoming out. The tenge has strengthened to 343.32 per dollar by Monday from January’s trough of 383.91.

The “situation in the domestic financial market indicates stabilisation in the currency preferences of banking depositors: dollarisation of bank deposits has stopped,” the bank said.

But its decision to keep the rate unchanged, rather than cut it in order to boost the flagging economy, “indicates the necessity to ensure the demand for tenge assets”, it said.

The former Soviet republic’s government last month downgraded its 2016 economic growth outlook to 0.5 percent from a previous forecast of 2.1 percent and some analysts say the economy is already in recession.

Economic growth slowed to 1.2 percent last year from 4.3 percent in 2014, according to official data. (Reporting by Olzhas Auyezov; Editing by Dmitry Solovyov/Ruth Pitchford)

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