(Bloomberg) -- Kazakhstan plans to buy $1 billion of inflation-protected US Treasuries in a wager that President Donald Trump’s policies will stall progress in bringing down inflation.

“Tax breaks, trade wars and protectionism, economic stimulus — these are all pro-inflationary rhetoric,” and they threaten to increase price pressures, according to Aliya Moldabekova, deputy governor of the National Bank of Kazakhstan. “There is a risk that inflation will not decline as it has been declining, and central banks will slow down rate cuts.”

That makes TIPS — which pay interest at fixed rates on a principal amount tied to growth in the US consumer price index — attractive, she said. The central bank plans to buy about $1 billion of the US government bonds meant to insulate investors from inflation over the next two to three months. That would comprise as much as 10% of the central Asian nation’s developed-market debt portfolio.

Stock markets around the globe were battered on Tuesday after the US unleashed the largest set of new tariffs in nearly a century. The Kazakh central bank is not alone in thinking Trump’s policies will be inflationary. Federal Reserve Bank of New York President John Williams warned that tariffs will contribute to pricing pressures, a sentiment shared by former Treasury Secretary Robert Rubin who said the levies added a “very serious risk of inflation.”

“Markets are volatile now,” Moldabekova said in an interview last week. The US consumer price index was 3% in January. And as she sees it, the US inflation rate is likely to remain above the rate implied by the debt, of about an annual 2.35%.

“We expect that by the end of the year it will still be higher than this breakeven,” she said, referring to the market measure of inflation expectations derived from inflation-linked Treasuries.

The TIPS will go into Kazakhstan’s $59 billion national oil fund, where $54 billion is allocated to a savings portfolio geared toward making more profitable investments.

There are other assets, besides TIPS, that benefit during high-inflation periods — real estate and infrastructure for instance, Moldabekova said. And while the central bank’s unit that manages so-called alternative investments already bought into real estate funds of funds, it’s now considering buying into infrastructure funds, she said.

Gold Bets

Kazakhstan’s central bank has $47 billion in reserves as of January, including $26 billion in gold. It was the world’s second largest net gold seller among central banks in 2024.

Tariff turmoil has stoked haven demand, sending gold on a record-breaking run this year. Bullion prices may be further supported by expected weak US payroll figures later this week. Trump’s proposed levies, including on China, threaten to keep price pressures elevated and dollar-denominated gold more expensive for foreign investors.

The central bank debated cutting the share of gold in its reserves to 50% from about 54% before deciding against it, citing estimates that the precious metal will climb as high as $3,100 per ounce. The bank may reconsider selling gold options if the precious metal hits $3,100 an ounce, Moldabekova said, which is about 7% above current trading.

With gold expected to climb higher as inflation reignites, Moldabekova sees the Kazakh central bank keeping bullion as a hedge.

Holding Dollars

The bank decided not to boost its US dollar holdings, currently 72% of the oil wealth fund, as the currency is too expensive to invest in.

Moldabekova shrugged off warnings about US fiscal instability and credit risk from its ballooning deficit, saying such concerns have been around for the past 20 years of her career at the central bank. Moldabekova expects the greenback to remain the world’s reserve currency and a critical payment instrument in international trade.

Kazakhstan’s central bank showed an increased risk appetite, investing in dollar-denominated emerging markets corporate bonds last year, as well as buying for the first time high-yield instruments — the corporate debt of developed market companies with ratings of BB+ and BB, one and two steps below investment grade.

The central bank plans to take profits on its stock investments, cutting its exposure through the national oil fund’s savings portfolio to about 30% from 36%, Moldabekova said.

“There is a concern that stock market became overheated,” she said, shares are expensive, especially as interest rates won’t be coming down quickly.

--With assistance from Mark Tannenbaum.