Kyrgyzstan's central bank intervened to support the som for the fourth time since the start of 2014 on March 3, as it dropped to a new low against the dollar on the back of regional risk.
The National Bank of the Kyrgyz Republic (NBKR) said in a statement that it had decided to intervene in the currency market after a sharp depreciation during morning trade. While the official rate fell to KGS53.9 to the US dollar - 9.7% lower than at the start of the year - some Bishkek bureaux de change were offering as much as KGS58, while others suspended som-dollar exchanges altogether.
"The significant growth of the US dollar against the som since the beginning of 2014 is mostly due to external shocks," the central bank's statement said. As the NBKR pointed out, the Kyrgyz currency has come under increasing pressure following the devaluation of the tenge in neighbouring Kazakhstan on February 11, which came as investors pull back from risky emerging market assets.
In addition, the som has been affected by the fall of the Russian ruble. Already under pressure from the effects of tapering by the US Fed, the regional currency's fall since the start of this year has become a plummet on the back of Moscow's military intervention in Ukraine.
The ruble hit new historic lows on March 3, pushing its depreciation since the start of the year to 10.8%. "[G]iven the close economic and trade relations with the Russian Federation ... this had an impact on the situation on the domestic market," the NBKR statement adds.
At a press conference, the deputy chairman of the central bank, Abdybaly tegin Suerkul, said that the exchange rate had been stabilised, and that the bank had sufficient reserves to support the currency, 24.kg reports. However, the regulator also called for calm.
"The National Bank is urging the public not to succumb to panic or make decisions relating to foreign exchange transactions in conditions of uncertainty." As of February 11, the bank had international reserves of $2.2bn.
The devaluation next door in Kazakhstan has provoked protest considered large in the authoritarian country. The government has been forced to promise it will prevent large price hikes and raise salaries.
The fall of the som is likely to hit the Kyrgyz population - and also the banks - even harder. In particular, the credit market looks vulnerable, with around 50% of bank loans denominated in US dollars. Meanwhile, concern about rising food prices saw the competition authority on March 3 call on bread producers not to increase prices.
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