Kazakhstan abandons tenge support policy

Bloomberg

Central Asia’s largest energy producer will keep its currency at about 150 tenge to the dollar from Feb. 4, the Almaty-based National Bank of the Republic of Kazakhstan said in a statement. It may fluctuate about 3 percent either side of that rate. The tenge fell 15 percent to 143.98 on the Kazakhstan stock exchange, from 122.32 per dollar Tuesday.

Kazakhstan is devaluing its currency as local banks and companies struggle to refinance debt and a recession looms. The nation, holder of 3.2 percent of the world’s oil reserves according to BP, is slowing after a decade-long boom during which the economy expanded an average of 10 percent a year. The government now predicts expansion of 1 percent this year. "The story on why they are devaluing is very similar to Russia and in certain instances, it’s even more extreme," said Bhanu Baweja, head of emerging-market currency at UBS in London. "The swing from a current account surplus to deficit is very extreme. There’s also a very real possibility of negative growth this year."

Supporting competitiveness
The central bank is "walking away from supporting the tenge exchange rate in its previous corridor to save foreign currency reserves and support local producers’ competitiveness," its statement said. Kazakhstan depleted its foreign currency and gold reserves by 6 percent in January as it sold more dollars. The holdings slumped $1.6 billion in January from $19.4 billion in 2008, the central bank said in a separate statement yesterday.

The Bank will cut the refinancing rate to 9.5 percent and reduce its reserve requirement by 0.5 percent, Chairman Grigori Marchenko said.