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The governor of the National Bank of Kazakhstan on February 12 defended its decision earlier this week to devalue the tenge, insisting in the face of public anger that it was the right decision due to continued pressure on emerging market currencies.
Qairat Kelimbetov told a press conference that he has "no doubt" that allowing the tenge to devalue by around 19% was the right move. The central bank said on February 11 that it would no longer maintain the currency in its previous range of KZT145 to KZT155 to the dollar, and allow it instead to trade at around KZT185, with a range of plus or minus KZT3.
While the decision has already boosted major Kazakh mining companies, such as Kazakhmys, whose main costs are salaries paid in tenge, there is growing anger among the population, who have seen their purchasing power fall. Kelimbetov, however, said that the devaluation had been carried out "flawlessly".
"A banker's work is not appreciated," he claimed. "I have no doubt that we did the right thing. All the complaints will stop in a year or two." Kelimbetov offered alternative targets for public anger as he sought to allay fears of a further fall in the value of the tenge and threatened reprisals against exchange offices that over-charge for foreign currencies.
"Unfortunately, provocateurs say that a second wave of devaluation will hit in Kazakhstan," the central bank head said. "Many bureaux de change hiked their prices to KZT200-KZT215 to the dollar, but there will not be another devaluation."
Falling off the peg
Pressure for a devaluation has been growing in Kazakhstan, which like Russia and other emerging markets has been hit by an outflow of funds. However, rather than allowing gradual depreciation, as the Central Bank of Russia has done, the Kazakh authorities have been spending heavily to support the currency.
"The national bank ... was probably burning $300-700m a month last year, and $2.2bn in January as pressure has increased," Jean-Christophe Lermusiaux, head of research at Almaty-based investment bank Visor Capital, told bne. "While the tenge has been kept pegged to the dollar for quite a long period of time, the ruble and other emerging markets currencies have already started to depreciate."
Reasons given for the decision by the NBK include the reduction in quantitative easing in the US, which has led to an outflow of funds from investors. The bank also cited uncertainty about the exchange rate of the Russian ruble, which has continued to weaken against the dollar since the start of 2013.
Kazakhstan's balance of payments is another factor, as although the current account remains positive, the country has seen an increase in imports in particular consumer goods. Those countries with the largest imbalances - Turkey is prime candidate in the region - have been hardest hit by the EM storm seen in early 2014, as they will find it harder to raise the cash to plug that gap as global financing becomes tighter.
"The need to restore the external competitiveness of the tenge exchange rate, the balance of trade of the economy, and maintain the competitiveness of domestic producers has necessitated changes to the national bank's monetary policy," the NBK statement announcing the devaluation said.
There is a feeling of dÃ©jÃ vu in Kazakhstan, where almost exactly five years ago the tenge was allowed to fall by 18%. The latest devaluation has sparked anger around the country, where most of the population is faced with a sudden fall in purchasing power and the value of savings in the national currency.
Prices for food and consumer goods are already rising, but salaries are not expected to increase. Meanwhile, the high dollarisation of the economy means those renting housing will see an immediate increase in costs.
In response, the government has stressed it will monitor prices to ensure that the devaluation is not used as a pretext for price hikes. The mayors of both Astana and Almaty have promised additional inspections. The agriculture ministry will also monitor prices of bread, dairy products and other basic foodstuffs.
However, many retailers are ignoring the warnings, and reacted immediately to the devaluation by closing their doors on the afternoon of February 11 to reset prices. As customers rushed to buy in the immediate aftermath of the devaluation announcement, some of the country's biggest retailers - of cars, white goods and groceries - were scrambling to change the prices on their imported goods.
In addition to growing online criticism of the government and central bank, a small demonstration took place outside the NBK's headquarters in Almaty on February 12. According to Interfax, around 40 people took part. The head of the Kazakhstan Muslims' Union, Murat Telibekov, told the newswire that demonstrators had come to call for Kelimbetov's resignation.
Meanwhile, the impact on Kazakh business is likely to be mixed. Lermusiaux points out that for the massive mining sector, where the top cost is labour, the depreciation is "like a present". Shares in miner Kazakhmys spiked 17.7% in London the day of the NBK announcement.
"It's a similar situation for KazMunaiGas, unlike international oil companies whose salaries are mostly dollarised," the analyst adds. "However, the news was a significant negative for telecoms companies such as Kcell and Kazakhtelecom, which have revenues in tenge but [capital expenditure] in dollars, and overall a moderate negative for the banking sector. While the devaluations will make Kazakh exports more competitive, many industrial companies have high levels of debt, much of which is in foreign currency.
"We think a more optimal depreciation would have taken the tenge to around KZT165 to the dollar. Indeed, while some industries have benefited, a depreciation that is too fast or to steep can create collateral damage and potentially fuel inflation to unnecessary levels," Lermusiaux adds.
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