IMF Says Kazakhs Can Withstand Pressure on Tenge for Years

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KAZAKHSTAN FEATURE

An Atyrau Mosque, Atyrau city, Kazakhstan, Wednesday, October 11, 2006.

Photographer: NARIMAN GIZITDINOV

Kazakhstan’s central bank has enough cash to support the tenge as it takes steps to make the currency more flexible and protect consumers from a sudden devaluation, according to the International Monetary Fund.

The Central Asian country has sufficient international reserves to keep the tenge stable for several years “even if there’s strong pressure,” Juha Kahkonen, deputy director of the IMF’s Middle East and Central Asia department, said in an interview. “If the central bank chooses to keep the exchange rate unchanged, Kazakhstan has the reserves to do that.”

Kazakhstan, part of a Russia-led economic bloc, has been fighting off pressure to devalue its currency for a second time in two years after the ruble’s 46 percent plunge against the dollar in 2014. The authorities allowed the tenge to weaken 19 percent last February as the economy of Kazakhstan’s biggest trading partner slowed. After re-election last month, President Nursultan Nazarbayev promised to avoid a “sharp” depreciation.

While the tenge corridor is adequate for now, Kazakhstan must move to a new currency policy in the next 12 months to 36 months, central bank Governor Kairat Kelimbetov told an IMF conference in Almaty Tuesday. This year, the Kazakh government and central bank are focusing on the interests of consumers, who suffer most from tenge devaluation, he said.

Analyst Optimism

The IMF is working with the bank to help smooth a switch to inflation targeting by 2020, according to Kahkonen.

“Over time, exchange-rate flexibility will be helpful and it would be good to do it in parallel with the strengthening of the monetary framework along the lines mentioned on the path to inflation targeting,” Kahkonen said Monday in Kazakhstan’s commercial capital, Almaty. Kazakhstan has “very high foreign-currency reserves so it has the luxury of choosing the timing.”

Gross international reserves were $28.7 billion at the end of April, while the National Oil Fund contained $70 billion, data compiled by Bloomberg show.

The central bank said last week it will allow a more flexible exchange rate, without giving a timeframe for the move. The move to a free float will take at least five years, Nazarbayev said after his re-election.

HSBC Holdings Plc and Jefferies International Ltd. have abandoned projections of an imminent devaluation. The tenge probably won’t weaken more than 10 percent in the next few months, about half their previous forecasts, they said in May.

Pressure Eased

The implied yield on three-month non-deliverable forwards on the tenge, or the cost to insure the currency against devaluation, traded at 22.14 percent at 7:18 p.m. in Almaty, near a 2015 low and down from a peak of 88.25 percent in January.

The cost of non-deliverable forwards was affected by “speculations” about expectations for a tenge devaluation and “volumes of free liquidity on the market,” Madina Tleubayeva, director of Eurasian Development Bank’s Treasury, said in an interview.

The speculative factor has been reduced “significantly” now, Tleubaeva said, helped by the central bank’s “exchange rate stability policy,” the oil price and the ruble’s recovery. Non-deliverable forwards’ prices will continue to fall absent “external shocks” such as a significant drop in the ruble or oil price, she said.

“I don’t think there’s any particular pressure right now on the tenge,” Kahkonen said.

Growth Outlook

Lower oil prices and the onset of recession in Russia suggest greater exchange-rate flexibility will be needed for some countries to retain competitiveness, the IMF said in a report published Tuesday. Kazakhstan’s economy may grow 2 percent this year, compared with 4.3 percent last year, the lender predicts.

The central bank governor was more optimistic. GDP may rise more than 2 percent this year at an oil price of $55 to $60 per barrel, aided by a return to growth in Russia’s economy in about the third quarter, Kelimbetov said.

The tenge was little changed at 185.81 per dollar, close to the level it reached after last year’s devaluation, data compiled by Bloomberg show. It will weaken to 212 by year-end and 222 by March 2016, according to money-market rates compiled by Bloomberg.

Other regional currencies have also suffered. Ukraine’s hryvnia, Azerbaijan’s manat, Belarus’s ruble and Georgia’s lari are the four worst performers this year of about 170 global currencies tracked by Bloomberg.

In preparation for the switch to inflation targeting, Kazakhstan should establish by year-end a monetary-policy council, including independent experts, to make decisions on interest-rate movements, Kahkonen said.

“It’s good to have elements ready, so we’re sure that when things start functioning they’ll function well,” he said.

For more, read this QuickTake: Currency Pegs

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