Kazakh Central Bank Dollar Sales Spur Tenge After Freefloat Drop

  • Interventions have amounted to almost $700m in four days
  • Currency at 250-260 per dollar represents fair value to Halyk

Kazakhstan’s tenge rallied for a second day as the central bank sold dollars to shore up the currency to a level that Halyk Finance said is fair.

The currency of central Asia’s largest energy producer strengthened 3.9 percent to 260.18 per dollar on Tuesday after the central bank sold $695 million over four days to defend it. The tenge slid to as weak as 299.99 against the U.S. currency on Sept. 16, almost a month after Kazakhstan abandoned its managed exchange rate in August to track declines in currencies of trading partners, such as Russia.

That slide prompted the central bank to start selling dollars as it argued that there was no fundamental reason for the tenge to exhibit the highest price swings worldwide. Three-month historical volatility for the currency is 58 percent, according to data compiled by Bloomberg.

If oil prices range between $50 and $55 a barrel next year, the fair value of the tenge is about 250 to 260 per dollar, according to Sabit Khakimzhanov, the head of research at Halyk Finance, a unit of the country’s second-largest lender by assets. The tenge is now at a "balanced level" and the central bank should stop intervening to allow the market to determine its fair value, he said.

While threatening to spur inflation, the weaker tenge also helps local companies stay competitive. Policy makers can act to smooth the tenge’s movements, but they won’t fight the trend if oil prices continue to decline, central bank Governor Kairat Kelimbetov said in an interview with Panorama newspaper last week. Brent crude slumped 2.5 percent to $47.71 per barrel on Tuesday.

The ruble has fallen 42 percent in the past 12 months as oil lost half its value, while tenge is down 30 percent in that period.