Kazakhstan's Tenge May Be Permitted to Strengthen on Inflation, HSBC Says

Kazakhstan’s tenge may strengthen more than 5 percent by the middle of next year as accelerating inflation forces the central bank to allow the currency to appreciate, HSBC Holdings Plc said.

The tenge may gain to 139.8 per dollar by the end of the first half of 2011, as the National Bank of Kazakhstan lets the managed currency strengthen in a bid to reduce prices on imported goods and thereby bring down inflation, Alexander Morozov, chief economist for Russia and the Commonwealth of Independent States in Moscow, said in an e-mail today.

Kazakhstan’s annual inflation rate quickened to 7.3 percent in October, boosting concerns policy makers won’t be able to keep consumer prices within their 6 to 8 percent target range next year, Morozov said. The central bank said in June it would prevent the tenge from moving more than 0.3 percent against the dollar each trading session, a policy it may abandon in favor of a “managed float” after March next year, Chairman Grigori Marchenko said in an interview Oct. 21.

“With the central bank’s clear mandate for maintaining price stability, most likely it would have to allow tenge strengthening as the key tool against inflation,” Morozov said in a separate e-mail to clients yesterday. “We expect that to happen once the current currency band regime expires in late March.”

Kazakh inflation accelerated for the second month in a row in October to the fastest since February. The former Soviet republic holds 3 percent of the world’s oil reserves, according to BP Plc.

The tenge may be 7.7 percent stronger than current levels at 137.1 per dollar by the end of next year, Morozov said. The currency, which has traded at an average 147.45 throughout the second half, was little changed at 147.5425 per dollar at 1:17 p.m. in the Kazakh financial capital, Almaty.

To contact the reporter on this story: Emma O’Brien in London at eobrien6@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net

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