Kazakhs Ramp Up FX Interventions as Russia Spillover Seen

Kazakhstan, which devalued its currency by 19 percent in February, ratcheted up its defense of the tenge in the wake of sanctions on Russia over Ukraine.

The central bank spent $700 million to stabilize the tenge on Aug. 1, when trading volumes reached a five-year high, with a “large market participant” selling about $500 million today, according to Halyk Finance. The Kazakh Prosecutor General’s office said Aug. 1 that information spread via social networks, media and text messages about a possible devaluation provoked a “rush” among people and resulted in the “threat of destabilization on the domestic currency market.” The central bank said there are no plans to devalue the tenge.

Kazakhstan, a member of the Russian-led Eurasian Economic Union, is getting caught up in the crossfire of sanctions imposed on its northern neighbor over the conflict in Ukraine. It cut the value of the tenge six months ago to keep the economy competitive after Russia allowed the ruble to weaken.

“The rush of the Kazakh population over a possible tenge devaluation was provoked by publications in some media, where authors tried to connect pressure on the tenge with sanctions against Russia and a decrease of Kazakh foreign-currency reserves in June,” Yerulan Mustafin, an analyst at Almaty-based Halyk Finance, said by phone.

The U.S. and the European Union have expanded sanctions against Russia, blaming President Vladimir Putin for backing rebels in eastern Ukraine. Russia was Kazakhstan’s second-largest trade partner after China in the first five months with a 14 percent share, a drop from its top ranking of 18 percent last year, according to the state statistics agency.

Tenge Devaluation

Kazakhstan’s central bank in February pledged to keep the tenge at 185 per dollar, with a range of 3 tenge on either side after a previous target of about 150. The tenge strengthened 0.3 percent to 182.10 per dollar and added 0.4 percent 5.0871 per ruble as of 7:53 p.m. in Astana, according to data compiled by Bloomberg.

While the Russian central bank has tried to combat market turmoil with three interest-rate increases this year, Kazakhstan hasn’t changed borrowing costs since cutting them in August 2012. The ruble’s forecast total return by year-end is the third-highest among all currencies tracked by Bloomberg at 4.6 percent.

‘Emotional’ Impact

“There are no objective economic reasons for a devaluation now -- the main external factor is the condition of the Russian economy and sanctions against it,” Aidan Karibzhanov, a former deputy chief executive at wealth fund Samruk-Kazyna and co-owner of Visor Capital, said on Facebook. “This will have an effect on us -- but indirectly and with a time lag. That’s what we must be prepared for. Currently the influence is more likely emotional.”

Commercial banks have sufficient foreign currency to meet demand, Olzhas Khudaibergenov, an adviser to the governor of the National Bank of Kazakhstan, said last week. The country’s international reserves rose 2 percent in July to $27 billion, after dropping 4 percent in June, according to central bank data.

“If the central bank will again nail the tenge to the 182 per dollar exchange rate and keep monetary conditions ultra soft, then the opportunity for carry trade will remain, creating a new wave of speculative pressure on the tenge,” Mustafin said.