Tenge Rallies Against Dollar Following National Bank Intervention

ASTANA – After sliding to nearly 300 tenge to the dollar on Sept. 16, the National Bank of Kazakhstan intervened and the tenge has rallied to trade at 267 to the dollar at the time of writing. The relatively steady decline and predictions that the currency could fall as low as 400 to the dollar, however, have citizens’ concerned about the impact the falling tenge will have on their lives.

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A report by Bloomberg on Sept. 17 outlined the slide and rally, noting that the currency had traded the day before as low as 299.9 tenge to the dollar – more than 30 percent less than its value when the free-float was launched on Aug. 20 – before the National Bank intervened on the Kazakhstan Stock Exchange by selling $144 million to deter speculators.

A National Bank statement explained that the bank “does not interfere with the formation of the market level of the tenge exchange rate, but reserves the possibility of participation in the domestic market by foreign exchange intervention, if necessary, to ensure the stability of the country’s financial system.” Due to volatility in the exchange rate, caused by speculation, it said, the bank had decided to intervene in the amount of $144 million. The bank intervened again on Sept. 17 with an additional $270.4 million.

Following the intervention, the tenge rose to 270.5 to the dollar, and has continued to rise, making its biggest gains since Aug. 20. Its swings in value are currently the largest in the world, according to Bloomberg.

Some exchange offices in Almaty and Astana have run out of dollars and euros and stopped selling them, according to an Expert Online report on Sept. 16. One Almaty exchange office manager told the magazine that there were more people wishing to exchange tenge for dollars or euros over the past two days than there had been over the previous week.

Speaking during the Russia-Kazakhstan Interregional Cooperation Forum in Sochi on Sept. 16, President of Kazakhstan Nursultan Nazarbayev acknowledged the economic turbulence, saying crashing export prices were the cause of the decline in trade between the two trading partners, and their currency instability.

“Economies have this tendency – they rise and fall. This is not the first time we are experiencing a crisis,” he said, according to a Tengrinews report. “It should be easy to treat this and find a new point to address the issues of increasing trade.”

Analyst Anastasia Ignatenko of TeleTrade suggested in the Expert Online report that the new round of weakening of the tenge was due to the decision of the National Bank to reduce the key interest rate to 12 percent to maintain inflation targeting. In February, the bank said it would decrease interest rates by 1 percent each month. “At the moment, the regulator is completely immersed in the implementation of the policy of inflation targeting to reduce inflation to 6-8 percent in the medium and to 3-4 percent in the long term,” Ignatenko said, according to Expert Online.

A weaker tenge will help local companies stay competitive against Kazakhstan’s biggest trading partners, Russia and China, according to Bloomberg. Recently, Vice Minister of Investment and Development of Kazakhstan Albert Rau said that the ideal exchange rate for Russian roubles to Kazakh tenge is 4.5 roubles to the tenge in response to questions after the Interstate Council for Industrial Security of the Commonwealth of Independent States. The exchange rate at the time of writing was 4 tenge to the rouble.

While some in the business community have welcomed the new exchange rate, many private citizens are concerned about their decreased purchasing power. Financial columnists and bloggers in the country are beginning to tell citizens to prepare for rates of 300, 350 and 400 tenge to the dollar. In LS Magazine, writer Kuralai Abylgazina, who is predicting a continued decline for the tenge, said “[The free-float] ended the euphoria of ‘We are great, we have oil, and the whole periodic table.’ Life and market poked our noses into who we really are: third world countries. … Now we really have to work.”

The government has promised to reimburse citizens for losses on tenge deposits and has accelerated plans to raise salaries for public sector employees, which are now to be increased in January. Local officials have been quick to announce agreements with food retailers, promising to hold prices steady, though at the announcement of the free float on Aug. 20, Prime Minister Karim Massimov said that the government would control prices for a few months, but said the market would have to set prices in the long term. The government also recently decided to stop regulating prices for AI 92/93 petrol.

However, Minister of Finance Bakhyt Sultanov told reporters outside the Mazhilis (lower chamber of Parliament) that salaries and purchasing power should not depend on the currency rate, Tengrinews reported on Sept. 18. He said it would take time to adapt to the new principles of letting the market dictate prices and salaries. Asked how Kazakhs can afford to live with the new exchange rate pushing up the prices of imports but without salary adjustments, the minister noted that civil servants’ salaries had been raised a number of times in recent years, including a 10 percent raise for public sector employees after the 2014 devaluation.

“Raises should not be connected with the dollar exchange rate, but to labour productivity,” Sultanov said, as quoted by Tengrinews. “All expenses of Kazakhs are in tenge. Certainly, imported goods hold a large segment of the market. But the work we are doing to increase the competitiveness of our domestic enterprises will result in a balance.” He did not say when the balance could be achieved.

Bloomberg notes that currency trading volumes are on the rise, with the volume of tenge transactions reaching $233 million in the Sept. 17 morning session, following an average of $151 million throughout the year.

Halyk Bank reported on that day that almost 80 percent of the currency-trading transactions it was processing involved selling dollars, not tenge, the report noted.

Halyk Bank called for more transparency in the country’s financial markets in a statement published on its website on Sept. 17. The statements said it welcomed the disclosure of trading volumes on the Kazakhstan Stock Exchange, but called it “only a first step to increase the transparency of the financial market of Kazakhstan. Moreover, the National Bank has repeatedly offered to disclose such information to the whole market.” The statement also called for the National Bank to increase “professional and correct” reporting and criticised the bank for publishing incomplete and misleading information. Publishing only general volumes of trading is not enough, Halyk Bank, which was listed as the biggest trader leading up to Sept. 16, said.

“In order to form an objective opinion, we offer to publish in a systematic way, not only the general volume, but the volume of net purchases and sales in the context of market participants. We call upon the National Bank of Kazakhstan to be consistent and to disclose such data exchange trading by banks since August 17, 2015. Moreover, the technical capabilities of the Kazakhstan Stock Exchange allow you to publish not only the volume, but do exchange rates, on which there is the buying and selling of the U.S. dollar,” the lender, one of the country’s largest, said.