Kazakh Tenge Hits Two-Year High as Oil Gains, Bank Loosens Grip

Kazakhstan’s tenge climbed to a two-year high against the dollar as the central bank eases control of the currency and crude prices at the most in 30 months lure investors to Central Asia’s biggest oil producer.

The currency appreciated to as much as 146.0050 per dollar by 5:21 p.m. in Almaty, the country’s financial capital. That was the strongest level since before the National Bank of Kazakhstan devalued the tenge by more than 20 percent in February 2009 amid the global credit crisis and sliding economic growth.

The tenge may add another 4.3 percent this year as policy makers allow greater gains to curb the fastest inflation in 1 1/2 years, according to BofA Merrill Lynch Global Research. The central bank, which has controlled the tenge by buying and selling foreign currency for the past two years, will formally abolish its trading corridor and allow the currency to strengthen as oil and other commodity prices climb, Chairman Grigori Marchenko said Feb. 8.

“Today’s gains are about oil, for sure,” Ivan Tchakarov, BofA Merrill’s chief economist for Russia and the Commonwealth of Independent States -- of which Kazakhstan is a member, said by e-mail. “Marchenko saying it’s going to appreciate is a signal, if he says something it generally happens,” Tchakarov said in a Feb. 22 interview.

Brent crude surged as much as 7.7 percent to $119.79 a barrel today, the most since August, 2008, as political uprising in Libya reduced supplies from Africa’s third-largest producer.

Through the Roof

Investors are betting the tenge will gain 0.3 percent in the next three months to 145.6250 per dollar, according to non-deliverable forwards. The NDFs, which are an indicator of a currency’s future movements as companies and investors use them to hedge, are “very, very conservative,” said Tchakarov, adding the National Bank will “gradually” permit appreciation to 140 per dollar by the end of the year.

“Inflation is also through the roof so it’s something that really needs to happen,” Tchakarov said Feb. 22.

Kazakhstan’s inflation rate was 8.1 percent in January, the highest since May, 2009, as global food prices rose to a record, according to United Nations data, and the price of oil climbed for a fifth straight month. Kazakhstan is Central Asia’s largest oil producer and holds 3 percent of the world’s crude reserves, according to BP Plc.

A stronger currency helps combat inflation by bringing down the prices paid for imported goods, Tchakarov said.

Bet on Tenge

BofA Merrill advised clients Feb. 10 to bet on tenge appreciation by buying nine-month NDFs once they hit 145 per dollar. The contracts traded at 144.85 today, Bloomberg data show.

With a similar economic profile to Russia, the world’s largest oil producer, Kazkahstan’s economy and currency often lag movements in its bigger neighbor by a few months, Tchakarov said. “The tenge charts the ruble so that’s another reason why it will strengthen,” he said.

The ruble is the best-performing emerging-market currency of 25 tracked by Bloomberg over the past three months, climbing 7 percent versus the dollar.

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