Kazakhstan Set to Rein In Speculators as $30 Oil Seen

  • Costs set to increase on tenge trade from mid-December
  • Budget committee to prepare plan for oil dropping to $30

Kazakhstan stepped up measures to limit speculation on the tenge, the world’s worst-performing currency this year, as the government braced for further declines in the price of oil.

“Currently, we are working to stabilize the money market and remove speculation,” central bank Governor Daniyar Akishev told a cabinet meeting in Astana today. “The next stage will be widening of instruments to provide liquidity to banks to lend to the economy.”

Under the new trading rules, the minimum lot size will be determined based on the extent to which the bid-ask price differs from the last transaction, while the bourse will show only the five best bid-ask quotes from Dec. 15, it said on its website. The changes will increase the cost of taking speculative positions, the central bank said. The tenge slipped 0.3 percent to 308.03 against the dollar and is down 41 percent this year, the biggest decline worldwide on Tuesday.

Kazakhstan, the largest oil producer among former Soviet republics after Russia, shifted to a floating exchange rate in August as tumbling crude prices and devaluations by Russia and China boosted the cost of defending the currency. While the tenge nosedived after the move, it has stayed within a 5 percent trading range in the past month amid central bank efforts to rein in speculation and support the currency.

Threats to currency stability have loomed as concern over a global oil glut sent Brent crude to a six-year low, eroding the country’s revenue outlook and prompting the government to assess plans for prices to drop to $30 per barrel. The 2016 budget projected oil at $40, Prime Minister Karim Massimov said.

Oil accounts for more than 50 percent of budget revenue, according to Standard & Poors. Brent fell to as low as $39.85 on Tuesday and oil in New York dropped to $36.91.

The tenge has been “de-facto” pegged to 307-308 per dollar since Akishev’s appointment last month, Tatiana Orlova, a senior economist Royal Bank of Scotland Group Plc in London, wrote in a report on Monday. Kazakhstan may repeg the currency if Brent drops to $30 or below and an adjustment to 340-350 “would be likely,” she said.

Akishev, who replaced Kairat Kelimbetov on Nov. 2, has threatened to punish investors who borrow on the short-term money market and buy dollars, adding the central bank has withdrawn from its obligation to support liquidity in “a narrow range of interest rates.”

(Corrects Dec. 8 story to show lot size will change in 3rd paragraph.)
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