Devaluation Nightmare Haunts Kazakh Banker Over Tenge Legacy

  • Pressure persists on tenge after free float started in August
  • Central bank has spent at least $1.7 billion to smooth swings

Oil-rich nations from Venezuela to Saudi Arabia are struggling to find policy responses to the fuel’s dropping price, caused by a global production glut. Kazakhstan opted to set the tenge free following devaluations by Russia and China, its neighbors and two biggest trading partners. The challenges were immediate as an emerging-markets rout forced Kelimbetov to spend at least $1.7 billion, or 6 percent of reserves, to smooth swings in what became the world’s most volatile currency after it lost the peg on Aug. 20.

“Kelimbetov is more of a political creature than a technical figure,” Kate Mallinson, a partner at London-based political risk advisory firm GPW & Co., said by e-mail. “He has become a scapegoat for Kazakhstan’s economic problems and will not be considered a leader for a long time.”

Another Time?

The currency, already devalued by 19 percent in February 2014, fell from about 187 against the dollar to a record low of 299.99 soon after the free float was introduced, when Kelimbetov predicted it would reach a balance within seven days. The optimal exchange rate is at 250-270 per dollar and the current level of about 279 is balanced, he told reporters in Almaty on Oct. 23. It traded at 280 per dollar at 2:23 p.m. in Astana.

‘Long-Lasting’ Shocks

Such steps may be needed as Kahkonen said the currency will probably “remain depreciated given that the shocks are long-lasting” and can continue for the next three to five years. The key test is how the central bank “uses its interest rates instrument to guide inflation to the desired level” after having done “a good job so far” in developing policy instruments for the new system, he said.

The room to tighten policy is limited by a foundering economy. President Nursultan Nazarbayev, who warned Kazakhs to brace for dropping corporate profits and incomes as well as possible job cuts, said this month that it’s “impossible to forecast” improvement soon after budget revenue has fallen 40 percent on lower energy prices. In addition to the central bank tapping its reserves of $28.2 billion, Kazakhstan also plans to sell $3 billion from the $67.9 billion National Oil Fund by Oct. 31 to aid the budget.

‘Good Terms’

‘Friendly Cooperation’

Many Kazakhs are waiting for evidence of strengthening before they switch their dollars into tenge, and state companies, which hold billions of dollars, could help the process by converting some of their money, Kelimbetov told reporters in Almaty Oct. 23.

The companies and the government should understand the need to do this “because we live in the same house” and “the whole country can’t bet against the exchange rate,” while “what’s happening now is a kind of casino,” he said.

State-owned companies in the Samruk-Kazyna sovereign wealth fund already “converted the dollar part of their deposits into tenge under instructions from the government and at the request of the central bank,” leading to losses at some, Deputy Chief Executive Officer Dauren Erdebay said in an interview Thursday in Astana. “Our influence on the exchange rate isn’t significant and wasn’t significant,” and the regulator “has no questions” for the fund, which “buys dollars when necessary” for companies’ needs, he said.

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