Kazakh officials rubbish devaluation worries

By bne IntelliNews June 3, 2014

bne -


Spooked by the unrest sparked by the devaluation in February, Kazakh officials lined up on June 2 to rubbish speculation that another sharp drop for the tenge is imminent.

Kairat Kelimbetov, chairman of the National Bank of Kazakhstan (NBK), said talk of devaluation has cropped up on average 13 times each and every year since a 25% devaluation in February 2009. The NBK head insisted currency speculators are to blame. "It's understandable that no devaluation is expected and all this is rumours," Kelimbetov told a news conference. "Since there are speculators in the market such speculative factors exist when people try to create them artificially."

With the tenge currently approaching the 185 lower end of the NBK's target against the US dollar, worries of another drop for the national currency have been growing. Late May saw Kazakhs rushing to buy USD after the tenge slumped close to 184.

Despite the claims of officials, the worries of the population are understandable, given the NBK is no fan of controlled devaluation. Policy has instead been to maintain the stability of the currency while possible, followed by a sharp devaluation. That strategy has been employed twice in the last six years. 

Indeed, last time Kelimbetov spoke out against devaluation rumours, and publicly voiced confidence in tenge, was less than 10 days before February's 19% devaluation, sending prices skyrocketing. Spurred by a 10% or so depreciation of the ruble - a regional reserve currency - between November and February and Kazakhstan's widening trade gap with Russia, the central bank suddenly announced the end of a $5bn intervention cycle on February 10. 

That saw the exchange rate to the dollar move from 155.6 to 184.5 within two days. Protest in closely controlled Kazakhstan was so serious that the government soon ordered salary increases for state employees. Since, speculation on social media and SMS also sparked a mini bank run, with the authorities pursuing the "culprits" they say started the rumours doggedly.  

Little wonder that the widespread speculation over the currency has rattled Astana. The central bank chief was quick to rattle off a long list of evidence against the likelihood of devaluation, insisting there are no grounds for concern thanks to high oil prices and leeway against any potential losses for the ruble on the horizon. According to some estimates, the February devaluation offered the tenge a 10% cushion. 

"Oil prices are high now," Kelimbetov said. "The ruble is strengthening, but even if it depreciates to a certain extent we are not worried about that. I believe we've created a sufficient margin of safety."

The central bank chief also said rising reserves - the NBK has seen its foreign exchange and gold reserves rise $4bn to $28.4bn thus far in 2014 - are another insurance policy.

Foreign Minister Yerlan Idrissov joined the effort, insisting suggestions that the creation of the Eurasian Economic Union in 2015 could hit the tenge are wide of the mark. The leaders of Kazakhstan, Belarus and Russia signed a treaty to transform the current Customs Union into the EEU in Astana on May 29.

"I don't think there is any reason to believe that the signing of our treaty will cause the devaluation of the ruble, the tenge or the Belarusian currency," he told an audience of diplomats on June 2. "On the contrary, I believe the strengthening of our economic potential will be able to and will make our currencies stronger and more stable."

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