After months of pressure on Kazakhstan’s currency, the central bank has moved to allow the tenge to slide – but avoided the large snap devaluation that doomsayers have long been predicting.
On July 15, the National Bank eased the corridor within which the tenge trades to allow it to drop by 5%, to 198 to the U.S. dollar.
Chief central banker Kayrat Kelimbetov explained, in remarks quoted by Tengri News, that the measure was adopted as the tenge was pushing the upper margin of the corridor of 170-188 tenge to the dollar that the bank had previously committed to enforcing.
There were no immediate signs of panic over the mini-devaluation in Kazakhstan, where the National Bank maintained its exchange rate at 186.8 tenge to the dollar and the currency closed at 187.05 on the Kazakhstan Stock Exchange on July 15. In exchange offices, the tenge was trading at around 187.5 to the dollar after the central bank’s announcement.
Financial analysts predict the slide will be gradual.
“The scenario of a sharp devaluation is not being considered, and in principle that’s correct,” economist Olzhas Khudaybergenov, a former adviser to Kelimbetov, wrote on his Facebook page.
Khudaybergenov predicted a slow depreciation of 0.5-1 tenge per month, with the currency reaching the upper limit of the new corridor (198 tenge) in about a year.
The calm with which the news was received contrasted with the last devaluation in 2014, when the tenge lost nearly 20% of its value in a single day, sparking public anger that escalated into small-scale unrest in Almaty.
Officials, from President Nursultan Nazarbayev down, have since been pledging no further snap devaluations, even as the tenge – like other regional currencies – has come under massive pressure from the slump in Russia’s ruble.
Falling trade with sanctions-hit Russia and the drop in global oil prices have caused economic doom and gloom in Kazakhstan, where the government forecasts growth of just 1.5 percent this year. The economy expanded by 4.3 percent last year.
Kelimbetov said loosening the tenge’s trading corridor was a step towards abandoning it altogether. The National Bank has said it will allow the currency to float freely “in the medium term,” but its chairman has been cagey about the timescale. In May, he put it at one to three years, but in an interview with Bloomberg the next month he upped it to between three and five years.
There are sound financial reasons for abandoning the policy of propping up the tenge, on which billions of dollars have been spent since last year, according to research by Almaty-based investment bank Halyk Finance.
Their reports have tracked millions of dollars spent every week by “a major player” supporting the currency, with $720 million spent in the first 10 days of July alone.