Kazakhstan’s national currency hit KZT363.97 against the dollar on August 14, falling to a new 30-month low. The all-time weakest tenge to the dollar rate of KZT382 occurred in early 2016.
The plunge was mainly ascribed to the tenge’s strong links to the course of the Russian ruble, which experienced a two-day drop last week. Kazakh companies are buying dollars on fears that US sanctions against Russia are set to deepen. Another potential source of tenge weakness might be stemming from the the “death spiral” of the Turkish lira, which has tanked by as much as 45% since the beginning of this year, although by 17:05 Istanbul time it had staged a 4.4% recovery on August 14. The lira’s weakness has fed through into negative perceptions of other emerging market currencies such as the South African rand, Mexican peso and Brazilian real.
Looking at weakness in the tenge, the Kazakh central bank noted on August 4 that a recent selloff of central bank notes by nonresidents was detrimental to the currency. The share of nonresident notes, which stood at $1.4bn in March when the share peaked at 11%, plunged to $450mn as of July 30. Nonresident holdings began to fall in May due to the strengthening dollar.
The tenge had depreciated by 9% against the dollar in the year to date as of August 13.
Distrust of regulator
Another major effect on the tenge has been the Kazakh population’s general distrust of the country’s regulator—most of this stems from devaluations of the currency prior to the central bank adopting the free-floating exchange rate in 2016. The free-float has essentially tied the tenge directly to fluctuations in world oil prices due to the Central Asian nation’s reliance on hydrocarbon exports.
The central bank of Kazakhstan, Central Asia’s most prosperous nation, said in a statement last week that it is “ready to conduct interventions designed to smooth significant and destabilizing short-term fluctuations in the tenge exchange rate”.
While the National Bank of Kazakhstan has not officially intervened on the currency market since last year, some observers believe it may have relied on its permission to keep interventions unreported when drawing on funds from the Kazakh national fund for such operations.
The central bank has more than enough funds to draw on to keep the currency more-or-less stable—Kazakhstan's international reserves were recorded at $87.7bn as of June. When all else fails, the bank is allowed to rely on the National Fund with assets worth $50bn-$60bn for conducting additional interventions.
Kazakhstan’s central bank announced on July 30 that Kazakh government bonds and central bank notes can now be cleared through the international central securities depository Clearstream. Only two weeks have passed since the announcement—it is unclear whether yield-hungry investors have caught on to the news given that the tenge continues to significantly weaken.
Russian Sberbank’s analytical department said in a note on August 6 that it expected the tenge to start appreciating again in the fourth quarter due to a seasonal increase in Kazakhstan’s exports.