Naubet Bisenov in Almaty -

Kazakhstan's central bank has reiterated its intention to move away from the current peg of the tenge to the dollar and switch to inflation targeting, implying a flexible exchange rate regime for the national currency, the tenge. However, the monetary authorities now intend to do it over the "three to five" years as opposed to the "18 to 36 months" announced earlier.

"We have actually adopted a new policy and in the mid-term we want to move to a new monetary policy regime which is called inflation targeting which means a greater [exchange rate] flexibility," Kairat Kelimbetov, governor of the National Bank, told Bloomberg in an interview posted on its website on June 24. "Now we are moving from a fixed exchange rate to a more flexible exchange rate but this is like a three-to-five year agenda."

In May Kelimbetov told a news conference in Almaty that Kazakhstan should apply greater exchange rate flexibility because "we cannot anymore stick to the fixed exchange rate" regime. The difference between Kazakhstan and Russia is that the former did not devalue its currency, and is not subject to Western sanctions and has not been barred from global financial markets, Kelimbetov explained then. However, "we believe in the medium term, which we regard as the following 12 to 36 months, we should switch to a new exchange rate regime", he said.

Asked by a Bloomberg anchor whether the tenge was not overvalued against other currencies, Kelimbetov replied: "I think the tenge is in equilibrium and we are in a good position vis-a-vis the dollar. It has depreciated gradually this year and last year and we are fine."

Because of the volatility of the Russian ruble over the last year, regional central banks, with the exception of the National Bank of Kazakhstan, have devalued their national currencies to respond to a decline in trade, remittances and investment from Russia. In May Kairat Kelimbetov explained that a 19% devaluation of the tenge in February 2014 had been conducted with “certain overshoot” that had created a cushion, enabling the country to maintain a current account surplus of $4.6bn or 2.3% of GDP in 2014.

That devaluation has stopped the depletion of foreign currency reserves, which had fallen from $37bn in 2011 to $23bn in 2013 and the reserves stood at $29bn at the end of the first quarter, the governor noted. Instead of a one-step devaluation of the tenge in order to maintain confidence in the national currency, Kazakh authorities have repeatedly said they will work on adopting a "switch to a floating exchange rate".

The tenge had come under enormous pressure to devalue in the second half of 2014 and earlier this year under the weight of falling oil prices and a weak ruble. Despite the authorities' reassurances that they will not allow a one-step devaluation, international banks and local analysts continue to predict up to a 30% drop in the value of the tenge against the dollar, which has been stable at around KZT186 to the dollar.

The devaluation plans, if they ever existed, were first spoilt by the announcement of an early presidential election on April 26, which in turn was sparked by the fear that the economic troubles the Kazakh economy is experiencing would complicate the scheduled re-election of Nazarbayev next year, whom the state-run media paints as the only guarantor of prosperity and stability.

Another possible reason for the delay in devaluation was a series of national holidays that fall between May and July – Kazakhstan marked Day of People’s Unity on May 1, Day of Defenders on May 7 and the 70th anniversary of VE Day on May 9 and will mark Astana Day on July 6, which coincides with Nazarbayev’s 75th birthday. Astana would not have wanted to spoil any of these holidays by social protests which could accompany any significant drop in the tenge’s value. The social unrest in the oil town of Zhanaozen in December 2011, which led to clashes between protesters and security forces, claiming at least 15 lives, coincided with the celebrations of the 20th anniversary of Kazakhstan’s independence.

Having marked Nazarbayev's 75th birthday with pomp, the authorities may well resort to the long-expected devaluation to help the economy weather problems linked to the country's over-reliance on oil and the shortcomings of government policy.