- Pressure persists on tenge after free float started in August
- Central bank has spent at least $1.7 billion to smooth swings
What looked like a plum job when Kairat Kelimbetov took charge of Kazakhstan’s central bank risks turning into a nightmare just two years later as the nation heads into what its president called a “real crisis.”
Instead of guiding an economy awash with money thanks to crude at more than $100, Kelimbetov is fighting to avoid being known as the man who devalued the tenge three times in two years. Amid social tensions sparked by the currency’s decline, the 46-year-old banker is striving to stabilize the exchange rate as market signals indicate further weakening before confidence is restored.
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.”
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.
The tenge touched 300 and “the market is waiting for a repeat,” at a time when uncertainty over the exchange rate is deterring investment until the central bank allows the currency to weaken to that level, Olzhas Kudaibergenov, director of the Astana-based Center for Macroeconomic Research and a former adviser to the governor, said by phone. Kelimbetov faces a challenge from “different representatives of the financial sector,” some of whom “want the tenge to weaken to as low as 350 per dollar,” he said.
“Kazakhstan’s move to the float was very bold, a good move,” as pressures undercutting the tenge “seem to be fairly permanent,” Juha Kahkonen, the deputy director of the IMF’s Middle East and Central Asia department, said in an Oct. 22 interview in Almaty. “What’s important now is to make sure that the framework for monetary policy is consistent with the decision to float.”
As it looks to prop up the tenge, the regulator raised its new base interest rate to 16 percent on Oct. 2 and may increase borrowing costs again if pressure on the currency continues, Kelimbetov said in an Oct. 5 interview. It will intervene in the market for “as long as it must and can,” in order to “maintain stability and order,” he said. The next rate decision is scheduled for Nov. 6.
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.
The economic forces tugging the central bank in different directions highlight the pressures on the governor in a country where government officials often seek influence in the financial industry. Astana Mayor Adilbek Dzhaksybekov is a major shareholder in Tsesnabank JSC, while Kenges Rakishev, the son-in-law of the defense minister, in August gained a controlling interest in the country’s largest lender, Kazkommertsbank. Nazarbayev’s daughter Dinara and son-in-law Timur Kulibayev control Halyk Savings Bank, the second-largest lender.
The main thing for Kelimbetov “in all of this maneuvering around him is to remain on good terms with” Nazarbayev, Oraz Jandosov, a former central bank governor and one-time opposition leader who now heads the Rakurs Center for Economic Analysis in Almaty, said in an interview.
While most central bankers seek to be on good terms with their country’s government, Kazakhstan’s political landscape may be trickier to navigate than most. The nation’s most powerful figures are jostling for position as Nazarbayev, 75, has signaled his readiness to relinquish control. The president extended his quarter-century rule by winning a fifth term in snap elections in April and promised after the vote that there would “definitely” be a transition of power toward the government and parliament.
The central bank didn’t respond to requests for comments on possible conflicts with business and whether Kelimbetov considers himself a political figure. He said earlier this month that he has “excellent” relations with the government and “only through friendly cooperation can we persuade the public that everything is going according to plan even though the situation is difficult.”
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.