INTERVIEW: Kazakh central bank chief says devaluation having desired effect

By bne IntelliNews April 16, 2009

Clare Nuttall in Almaty -

The devaluation of Kazakhstan's currency, the tenge, has improved confidence in the Kazakh economy, and fears it would lead to rampant inflation haven't been realised, Grigory Marchenko, governor of the National Bank of Kazakhstan, tells bne.

Marchenko's appointment as head of the National Bank was the first in a chain of events that shook Kazakhstan in late January and early February. When his appointment was announced on January 21, the immediate assumption was that a devaluation was imminent. His previous stint as governor of the central bank, from October 1999 to January 2004, followed the 1999 devaluation of the tenge. He later served as deputy prime minister and adviser to the president before moving to head one of Kazakhstan's largest commercial banks, Halyk Bank, in 2005.

On February 4, the anticipated devaluation took place, with the tenge falling by 18% in one day. The central bank announced it would support the tenge in a new corridor of KZT145-155 to the dollar. Despite fears this would cause a steep rise in inflation, during February inflation rose by just 0.8%, the same level as in February 2008.

"Basically these expectations were wrong and the downward trend in inflation which we saw in December and January proved to be stronger than the effect of the devaluation," Marchenko says. "So far, we see little effect on food prices." According to the statistics agency, 68% of foodstuffs consumed in Kazakhstan are produced locally, as are around two-thirds of basic non-food goods.

The main beneficiaries of the devaluation are domestic producers who were struggling to sell their products within Kazakhstan due to competition from cheaper imported goods, especially after the devaluations of the Russian ruble and other regional currencies. "The major reason for the devaluation was to make Kazakhstan-produced goods more competitive on the domestic market, because after the devaluations in some other countries, local goods became less and less competitive," Marchenko says.

On the question of whether the tenge will be devalued further, Marchenko is adamant. "We do not feel or see any need for further devaluation this year," he says. "We do have a contingency plan, but we will not make this public."

Restoring confidence

Since the February 4 devaluation, "confidence has improved quite substantially, because the devaluation expectations have been taken out of the system," he says.

During January, this had put considerable pressure on the tenge, when the population converted around $2bn worth of tenge in cash into dollars, and converted a further $3.8bn of tenge deposits into dollar and euro deposits. "That's a lot of money for a country like Kazakhstan, around 5% of GDP," points out Marchenko. "We took preemptive action and because of that, most of the devaluation expectations have been removed."

Marchenko dismisses speculation that arose in mid-February about a second devaluation as a "blip" caused by owners of some exchange bureaux spreading rumours of a second wave of devaluation. After several statements both by the National Bank and by President Nazarbayev, the situation improved and speculation has subsided.

"In March, most days our interventions were very little. Some days we buy a little, some days we sell a little, but we can see that our reserves are not being depleted or affected significantly because the situation is stable," he says.

Net purchases of foreign currency notes were down 53% month on month to $930m in February 2009, after peaking at $2bn in January. "This proves that the exchange rate was selected properly - I mean that we didn't over- or under-shoot and there is no excessive demand or supply of currency in the market. It also shows that most of the population and legal entities have accepted the new corridor."


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INTERVIEW: Kazakh central bank chief says devaluation having desired effect

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