Current Tenge Rate Is Balanced, Kazakh Regulator Chief Saysby
Regulator doesn't rule out further base rate increase
Central bank will act to counter tenge shocks, speculators
The tenge, the world’s most volatile currency since a free-float in August, has reached a balanced rate against the dollar and speculators shouldn’t try to manipulate it, Kazakh central bank Governor Kairat Kelimbetov said.
The regulator, which raised its new base interest rate to 16 percent on Oct. 2, won’t rule out a further increase if pressure on the tenge continues, Kelimbetov said in an interview in Almaty on Monday. The tenge’s present rate of around 270 to the dollar is balanced if no major changes occur in the oil price and foreign currency markets, he said.
“Unfortunately, there are some players in the market who think they can push the market,” Kelimbetov said. “This endless game is pointless.”
The tenge, which had traded in a band around 185 against the dollar, has swung between 208 and 300 to the greenback since policy makers moved to the free-floating exchange rate. The central bank has spent almost $1.4 billion to smooth the fluctuations since Sept. 16.
The bank won’t fight trends in oil and foreign-exchange markets, though it will intervene to smooth out shocks and counter speculation, Kelimbetov said. “That’s our role,” he said.
An increase in dollar flows into the market is expected when banks start to close foreign-currency swaps from Jan. 1, while the regulator is also “discussing with banks an increase in the minimum reserve requirements” to absorb excess liquidity in the market, Kelimbetov said.
The tenge fell 22 percent on Aug. 20 when Prime Minister Karim Massimov announced that Kazakhstan would move to a free-floating currency after a plunge in oil prices and devaluations in Russia and China, its two largest trading partners. Kelimbetov said at the time that the exchange rate would reach a balance in five to seven days.
The central bank will intervene in the market for “as long as it must and can,” in order to “maintain stability and order,” Kelimbetov said. The “greed” of Kazakh banks has contributed to the tenge’s movements, though they may lose more from an increase in non-performing loans than they earn in foreign-exchange dealings if the currency falls further, he said.
The ruble weakened 39 percent against the dollar in the past 12 months as oil lost half its value. The tenge is down 33 percent in that period. It traded at 271.65 against the dollar at 6:07 p.m. in Astana. Umut Shayakhmetova, chief executive officer at Kazakhstan’s second-biggest lender Halyk Bank, called on the regulator to offer more clarity on its new policy for the local currency.
The tenge’s current level is “quite adequate” with Kazakhstan’s base rate at 16 percent, provided oil remains at about $47 to $50 per barrel and Russia’s ruble stays at around 70 to the dollar, Kelimbetov said. There also needs to be “an absence of policy changes at the U.S. Federal Reserve,” and of any “cataclysmic” change in China’s currency, he said.
“Depositors and traders believe that further weakness is inevitable. Our year-end tenge-dollar rate forecast is 290,” said Chris Weafer, a senior partner at Moscow-based consulting firm Macro Advisory. The only reason Kazakhstan would consider imposing any form of capital controls “would be if it felt the risk of a public backlash was growing, which might then lead to social instability and political problems. But, for now, that seems unlikely.”
The regulator’s focusing on the base-rate tool, which will encourage banks to play their primary role of lending to help the economy, Kelimbetov said. He has “excellent” relations with the government and discusses issues with them “on a daily basis” including the need for a policy of predictable borrowing and balanced deposits by state-run companies.
“Only through friendly cooperation can we persuade the public that everything is going according to plan even though the situation is difficult,” Kelimbetov said.