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Kazakhstan’s central bank is prepared to return to the currency market in force to soak up excess dollars after a month of doing “practically zero” as higher returns draw savers to tenge deposits, Governor Daniyar Akishev said.
“If there are significant inflows of foreign currency, we are ready to buy as before,” Akishev said in an interview on Friday in Almaty, Kazakhstan’s commercial capital. Seasonal factors including summer travel boosted demand for foreign currency in June, and “the National Bank’s participation wasn’t necessary,” he said.
Policy makers are focused on purging the $184 billion economy of excess reliance on dollars after the crash in oil prices forced the central bank to devalue the national currency twice in two years, prompting an exodus from tenge savings. Akishev, 40, who previously served as an aide in the presidential administration and as a deputy governor at the central bank, had the task of restoring public confidence in the tenge after his appointment by Kazakh leader Nursultan Nazarbayev last November.
After abandoning its currency peg and adopting a free-floating exchange in August, the central bank lifted its new benchmark interest rate as high as 17 percent this year to halt outflows. With the tenge rebounding, the central bank has been active in the currency market again. Net purchases of foreign exchange exceeded $3 billion in February-May before slowing to near zero in June.
The tenge has appreciated almost 14 percent since falling to a record in January, the second-best performer among its ex-Soviet peers after the Russian ruble.
Even when the central bank was present in the currency market, it never accounted for more than 40 percent of trading volumes, according to Akishev.
“In such conditions, it would be inaccurate to say that we were preventing tenge strengthening,” he said. “We were buying up a significant influx of foreign currency.”
An increase in dollar flows into the market is expected when lenders start to close foreign-currency swaps with the central bank, which are all due within a year. The contracts, which allowed banks to obtain tenge, accounted for $3.1 billion of the central bank’s $28.6 billion in reserves in May, according to its website.
“We aren’t concerned that closing the swaps can critically affect the size of reserves,” Akishev said. “That’s because what will happen is the release of foreign currency, which banks will probably place on correspondent accounts at the National Banks or sell on the currency market.”
The share of foreign-currency deposits peaked in January, and has since been declining at the same pace, he said. The proportion has dropped by about 10 percentage points both for households and companies, reaching 60 percent of the total at end-May, according to Akishev.
“An acceptable level we’d like to reach this year is 50-50 on all deposits,” he said. “Trends have emerged, and I think they will continue.”
While the 50-50 threshold isn’t a target, it amounts to a level that will allow banks to unlock long-term funding in tenge and pave the way for a revival in lending, he said. Total loans are little changed since the start of the year at 12.4 trillion tenge ($36.7 billion).
Business models need to evolve, allowing manufacturers and the food industry to account for more loans, while the share of retailers will decline, according to Akishev.
“Some time is needed for lending to resume because the economy has to adapt to a new reality,” he said.