Kazakhstan’s national currency hit KZT380.93 against the dollar on September 12, falling to a 31-month low. The all-time weakest tenge to the dollar rate of KZT382 occurred in early 2016, thus the currency is on the brink of suffering its weakest ever value versus the USD. The tenge has largely fluctuated around KZT340 throughout most of the year, but it acquired fresh downward momentum in July which accelerated in August. To date, in September, there has been further devaluation.
The plunge has been mainly ascribed to the tenge’s strong links to the under-pressure Russian ruble. The tenge has lost 14.6% against the dollar in the year to date. Kazakh companies are buying dollars on fears that US sanctions against Russia are set to intensify. Kazakhstan and Russia have close trade ties, where the latter approximately accounts for 35% of the ex-Soviet Central Asian nation’s trade.
Not everybody agrees with the significance to the currency of the trade correlation, however. Kazakh economist Petr Svoik argued earlier this year that the tenge fluctuations follow the ruble exclusively due to perception effects rather than direct economic ties.
"The tenge is tied to the ruble politically. In general, the floating rate of the tenge in Kazakhstan is not an economic, but a political phenomenon,” Svoik told Zakon.kz news website in April. “Local banks react to geopolitical and economic events outside of Kazakhstan, and above all to events at the Moscow currency exchange and the Moscow trading platform.”
Some Kazakh analysts argued earlier in 2018 that the tenge was “overvalued” and that its “real value” stands at around KZT420 to the dollar.
Demoralised population and its trust issues
Another major effect on the tenge probably comes from the demoralised 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. Kazakhstan has experienced no less than six such devaluations or “devalvatsiyas”—a word that has come to signify the rapid and sudden weakening of the tenge rather than a general term for loss of value over time—since gaining independence in 1991.
The adoption of the free-float currency system essentially tied the tenge directly to two primary factors—changes in world oil prices due to the country’s reliance on hydrocarbon exports and the rate of the Russian ruble. As seen from the recent downward trajectory of the tenge, growing oil prices have largely failed to counteract the ruble-dependency. Aivar Baikenov, director of the asset management department of Kazkommerts Securities, said last year that the tenge has a stronger correlation with the ruble than with oil prices. But this phenomenon is being intensified by the approach of Kazakh citizens.
Kazakhs have grown accustomed to their national currency crashing abruptly to the detriment of the general population. The attitude taken towards the exchange rate, whenever it shows signs of weaknesses, spurs Kazakhs to attempt to outsmart or out-gamble the authorities, who are seen as malevolent.
Russian news outlets last year alleged that Kazakh currency speculators en masse were taking advantage of high rates on tenge deposits by obtaining loans in rubles and dollars—often from neighbouring countries—before exchanging them into tenge sums and depositing those at high rates, hoping to profit off the difference. That, in turn, led to excess tenge in circulation, which forced a gradual devaluation of the currency, the reports posited.
Even local media have often added to the paranoia. The country’s opposition media kept issuing warnings at the end of 2017 about an inevitable crash lurking around the corner for tenge currency holders. Opposition-run 365.kz news agency opined that the central bank would eventually be forced to stop intervening in the market and allow the tenge to drop as low as KZT350 to the dollar, if not further. This was expected to take place within the first few months of 2018, but the panic was seemingly to no avail—at least until much later in the year.
More than enough funds
The Kazakh 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. This time, it seems the Kazakh central bank has openly decided to let the tenge drop alongside the ruble.
By allowing the tenge to depreciate, the authorities are able to meet budget targets by generating more tax revenues, some Kazakh analysts believe. Even the government itself cited earlier this week the weakening of currencies across emerging markets—which include the “death spiral” of the Turkish lira—as proof that the tenge’s slide is a normal phenomenon.
Last week, the central bank chairman Daniyar Akishev reportedly commented that Kazakhstan's inflation rate might stay above the regulator's forecast inflation range for 2019. Annual consumer price inflation in Kazakhstan stood at 6% in August, according to central bank data. The national lender has forecast that inflation in 2019 will slow to 4-6%, down from the 5-7% expected until the end of 2018.
The signs really don’t seem to favour the drained Kazakhs, yet to feel any benefits of the reported 4.1% annual economic expansion in the first seven months of 2018. A glimmer of hope might be derived from an August 6 analytical note from Russia’s Sberbank. It anticipated that the tenge will start appreciating again in the fourth quarter due to a seasonal increase in Kazakhstan’s exports.