Kazakh Central Bank Sees No Grounds for Currency Devaluation

Kazakhstan’s central bank said it sees no grounds for a devaluation of the national currency, the tenge, which has depreciated against the dollar for 21 consecutive trading sessions.

The National Bank of Kazakhstan will continue to “soften sharp fluctuations of the tenge without influencing the general trend” of the exchange rate as determined by market forces, the regulator said in a statement distributed today in Almaty, the nation’s commercial capital, where the regulator is based.

The tenge’s 1 percent drop in July amounts to a “technical correction,” central bank Chairman Grigori Marchenko told reporters today. The regulator’s net interventions on the domestic currency market in the past three years and the first half of 2013 were “practically equal to zero,” he said.

Kazakhstan, which holds about 3 percent of the world’s crude oil and is the largest uranium supplier, devalued the tenge by 21 percent in February 2009. The global financial crisis that followed the collapse of Lehman Brothers Holdings Inc. forced the government to seize control of BTA Bank, its biggest lender at the time, and spend billions of dollars to prop up the economy.

The central bank in December 2009 widened the trading band used to manage the exchange rate of the tenge against the dollar and scrapped the corridor in March 2011. The tenge has appreciated more than 5 percent since then to 153.32 per U.S. currency today, according to data compiled by Bloomberg.

Ruble Link

Without a sharp devaluation of the ruble in neighboring Russia, Kazakhstan faces no risk of its currency collapsing, according to Marchenko. The tenge will face little pressure until the ruble depreciates to 36 against the dollar, he said.

China and Russia, which both share a border with Kazakhstan, are the central Asian nation’s biggest trading partners.

The Russian currency retreated 0.6 percent to 32.6400 per dollar at 7:16 p.m. in Moscow. It last traded weaker than 36 per dollar in March 2009.

Marchenko has urged Kazakhstan’s customs union partners Russia and Belarus to align currency policies with each other to avoid “sharp, unilateral” devaluations. Russia’s central bank drained more than $200 billion in the six months through January 2009 as it managed a 35 percent devaluation of the ruble to the dollar. The government defaulted on $40 billion of domestic debt and devalued the ruble in 1998.

Marchenko’s support for more coordination of exchange-rate policies suggests “the National Bank of Kazakhstan will gradually soften the tenge peg to the U.S. dollar in the future,” HSBC Holdings Plc economists Alexander Morozov and Artem Biryukov in Moscow said in a report this month.

“In line with our expectations of the medium-term ruble depreciation trend this implies some tenge weakening against the dollar as well, in order to maintain the tenge/ruble cross rate,” HSBC said.

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