Kazakhstan widens exchange rate trading corridor

By bne IntelliNews July 15, 2015

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The National Bank of Kazakhstan has decided to widen the tenge's trading corridor against the US dollar, Kairat Kelimbetov, the head of the NBK,  stated at a briefing in Astana. The decision came after the recent groundbreaking nuclear deal with Iran, which gives little hope that oil prices will increase and therefore means pressure on the tenge will continue.

Kelimbetov explained that the new trading corridor will be KZT170-198 per $1 against the previous range of KZT170-188 per $1. According to him, the widening was made "in order to expand room for manoeuvre in the next 12 months". He also reasoned that the recent action of the NBK will help in implementing a more flexible and fluid exchange rate formation mechanism. The ultimate goal of the NBK in the medium-term perspective is inflation targeting, Kelimbetov has stated.  

The Kazakh national currency is under pressure stemming from low oil prices as well as from negative tendencies in the economies of Kazakhstan's main trade partners: economic crisis in Russia and slowdown in China. At the same time, the strong tenge undermines the competitiveness of Kazakh producers  (which are suffering from an inflow of cheap Russian products) and the government's efforts to diversify the economy.

Despite this, the government is afraid of the tenge depreciation as such a move would have an adverse effect on the population's wellbeing and would add to internal tension, which could be extremely dangerous to the country's authoritarian system. These circumstances have pushed the government to action aimed at stalling, with a hope that oil prices will recover.

The deal on Iran undermines this hope and has made the NBK widen the corridor. At the same time, the action will not spark panic on the market as the government and president have several times hinted that if depreciation of the tenge happens, it will be gradual. 

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