Kazakhstan joins currency war, devalues tenge

Following China’s yuan devaluation last week, oil and gas producer Kazakhstan devalues its currency to regain competitiveness

Photo by: Reuters
Photo by: Reuters

A man talks on his mobile phone as he walks past a board showing currency exchange rates in Almaty, Kazakhstan, August 20, 2015

The tenge lost more than a quarter of its value on Thursday as Kazakhstan fired the latest salvo in an emerging market currency war, ditching a trading band stretched to breaking point by sharp falls in crude and commodities prices.

President Nursultan Nazarbayev said oil-dependent Kazakhstan, which has lost competitiveness to trading rivals during a wave of devaluations and depreciations in the region, had been forced to act.

"No one could have stood aloof from this (currency) storm," he told a meeting of officials and business leaders broadcast on state television, adding that the central bank had spent $28 billion since the start of 2014 defending the tenge.

Prime Minister Karim Masimov said earlier that Kazakhstan would now compete better, "including on the markets of our neighbours," referring to Russia and China, which sent shockwaves through emerging markets last week by devaluing the yuan.

The float was welcomed by Kazakh oil and mining sector firms.

But analysts warned it might prompt similar action by others in the region, and it dismayed ordinary Kazakhstanis, who have already seen the tenge devalued three times since 1999.

"I am going to a bazaar right now, and the tenge in my wallet are weighing less and less," translator Alexei Chernoussov wrote on his Facebook page. "I don't know if I will buy something before this cash simply evaporates."

Nazarbayev, a strongman who has ruled Kazakhstan virtually unopposed since 1989, said police would crack down on any "provocateurs" who protested against the new policy.

The official tenge rate tumbled by 26.2 percent to 255.26 per dollar on Thursday and exchange offices in the financial capital Almaty said they were selling dollars at 253.

Kazakhstan's central bank most recently devalued the tenge, by 19 percent, in February 2014, and the currency has been under pressure since last year when the rouble of key trade partner Russia collapsed, driven lower by western sanctions as well as oil's declines.

Kazakhstan, Central Asia's largest economy and No.2 post-Soviet oil producer after Russia, suffered a 40 percent fall in exports between January and July, said National Economy Minister Yerbolat Dosayev, due to the sharp drop in global oil and commodity prices. Kazakhstan also exports significant quantities of metals.

Imports shrank by 20 percent in the same period, he said.

Central bank Governor Kairat Kelimbetov appeared unruffled by Thursday's sharp market-driven drop in the tenge, saying he expected the market would set "a fully balanced rate" in five or seven days.

"This is not a devaluation, this is a transition to a freely floating rate when the market itself determines a balanced exchange rate," he told a news conference broadcast from the capital Astana.

He also said the central bank would no longer intervene massively to influence the tenge rate and the bank and government said the country's economic policy would henceforth be based on inflation targeting.

That brings Kazakhstan's policy more into line with Russia, whose central bank floated the rouble late last year and announced a shift to an inflation-targeting regime, but still periodically reacts to bouts of rouble weakness.