Kazakh Currency Drops Again

The ruble lost over 80% of its value in the last year and China last week moved the yuan lower.

The collapse follows a fall within the worth of oil, Kazakhstan’s foremost export, and drops within the worth of the currencies of the nation’s principal buying and selling companions, Russia and China. While the international Monetary Fund recently revised its forecast for Kazakhstan’s 2016 growth to 3.25 percent (the World Bank pegged 2016’s projection at 2.8 percent in May), it did so on the assumption that oil prices and Russia’s economy would recover and the Kashagan field would resume production, none of which are certainties.

“The decision was made to start a new economic policy from August 20 on the basis of inflation targeting and to cancel the currency corridor,” Prime Minister Karim Masimov said during a government teleconference on Thursday, citing a joint statement of the government and the National Bank.

That was the steepest retreat since February 2014 when the central bank, which uses its foreign-currency reserves to manage the exchange rate within a trading band versus the dollar, depreciated it by about 20 percent.

The move to free float sent the tenge to 255.26 against the U.S. dollar from around 188 seen overnight, according to the Kazakh Stock Exchange. We’ve been preparing to shift to inflation targeting for the past six to twelve months.

Firstly, Kazakhstan devalued its currency – the tenge – by abandoning a peg to the dollar and allowing the market to set the price. “The recent weakening of the Chinese yuan [China is another major trading partner with Kazakhstan] may be an additional factor”, said Tom Levinson, chief currency strategist at Sberbank CIB. The government may trim its budget spending this year, Masimov said.

The ex- country is 75-year old Leader Nursultan Nazarbayev said that potential financial planning within the country ought to be modified to suppose gas costs at $30-40 per barrel which belt tightening steps might also influence national tasks that are flashy. He said next year the cabinet would not borrow on foreign capital markets to bridge the fiscal gap.