Central Asian states damp down currency fears

By bne IntelliNews October 23, 2014

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Authorities across Central Asia are rushing to damp down concerns over the state of health of their respective currencies, with Kyrgyzstan's central bank reasserting the soundness of the country's foreign currency reserves right on the heels of its Kazakh and Turkmen counterparts.

“There is no shortage of US dollars in the Kyrgyz market,” Kyrgyzstan's central bank said in a statement. “Commercial banks have sufficient amount of foreign currency to meet the demand of the population.”

Central Asian currencies have been under pressure throughout the whole of 2014, largely mirroring the troubles of Russia's sanction-hit economy and the ruble. Kazakhstan's tenge devalued by 19% devaluation against the US dollar back in February, the Tajik somoni has lost around 5% against the greenback, and local press in Turkmenistan reported currency exchange shops not selling dollars any more earlier this month. Kyrgyzstan is no exception. The som lost 13.12% against the dollar year-to-date and one dollar is now traded at 55.64 soms. 

"The growth rate of the dollar to the som can be explained by its continued exposure to external factors (global trend to strengthen the dollar, imposed sanctions against Russia over the situation in Ukraine, the fall in oil prices since the beginning of the year) and internal factors (increase in demand due to the need to pay for imported goods, which may be due to the planned accession of Kyrgyzstan to the Eurasian Economic Union), " the central bank said in a statement.

Russia's economic troubles and the plunging ruble  are particularly hitting the flow of remittances Kyrgyz citizens working in Russia send back home, which make up more than 30% of the country's GDP, the World Bank estimates. Total remittances fell for the first time in five years in the first quarter of 2014, the European Bank for Reconstruction and Development said in a statement in September. 

Kyrgyzstan economic growth is expected to slow down to 4.1% in 2014, down from 10.1% a year earlier, yet way higher than the average 0.8% forecast for the whole Commonwealth of Independent States's (CIS), according to figures from the IMF. “The outlook remains sensitive to regional developments, namely a further slowdown in Russia,” the IMF stated at the conclusion of a mission to Bishkek in July.  

In a push to address the challenging economic cycle and shore up the som/dollar exchange rate, Kyrgyzstan's central bank has been actively involved in the currency market and carried out net sales of more than $309mn since the beginning of 2014. 

The bleak outlook of the Russian economy and the oil market worldwide is taking a toll on the Kazakhstan economy too, with the government's economic growth forecast for full 2014 now at 4.3% from a previous 6%. Concerns over a new devaluation of the Kazakh tenge have spread throughout the local business community. 

“I believe there is no reason for concern. The cushion given [to the tenge] by the February devaluation is very powerful," Kazakh news outlet Tengrinews quoted Kairat Kelimbetov, head of Kazakhstan's central bank, as saying on October 21. 

On the other side, Turkmenistan's president Gurbanguly Berdimuhamedow addressed the issue of a supposed shortage of US dollars on October 20 by stating that the country intends to maintain the currency exchange rate in the currency market -  the manat/dollar rate has been left untouched since early 2009. 

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