Kazakhstan’s tenge sank the most since the country switched to a free-floating exchange rate as crude oil fell and Halyk Finance said the central bank’s key interest rate is too low to put a floor under the currency’s declines.
The currency of central Asia’s biggest energy producer depreciated by as much as 7.8 percent to 285.38 against the dollar, the biggest decline since Aug. 20, before trading 5.2 percent weaker at 2:43 p.m. in Almaty. The tenge has fallen 28 percent since its peg was abandoned last month. It is 35 percent weaker in the past 12 months, compared with 44 percent for the ruble.
Kazakhstan cut its currency loose to help its companies compete after China devalued the yuan and Russia’s ruble sank with oil prices. The nation’s central bank set a new benchmark interest rate of 12 percent on Sept. 2 as it develops policy tools to control inflation, which the government aims to keep below 10 percent this year.
The central bank interest rate is “too low,” Sabit Khakimzhanov, head of research at Halyk Finance, a unit of the country’s second-largest lender by assets, said via phone. “If interest rates stay so low, the weakening of the tenge will continue and we will leapfrog Russia.”
Swings in the tenge of are the widest globally, with three-month historical volatility at 55.5, according to data compiled by Bloomberg. The currency gained the most in 20 years on Aug. 24, as companies and individuals were selling dollars to profit from the devaluation and to pay taxes. The currency has fallen every day since Sept. 3.
Kazakh assets need an interest rate of at least 16 percent to stabilize the tenge, according to Damir Seisebayev, director of the research department at Private Asset Management in Almaty.
Low trading volumes are also exacerbating moves in the currency, he said. About $28 million of tenge transactions took place in the morning session at the Kazakh stock exchange in Almaty compared with a 12-month average of $151 million, according to data compiled by Bloomberg.