SEPT. 21 2015 (The Conway Bulletin) – Kazakhstan’s Central Bank bought $200m-worth of tenge to protect its currency after it broke through the psychologically important 300/$1 barrier. Despite pledging not to intervene in the value of the tenge, the Kazakh Central Bank has spent over $700m this month on its defence.
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(News report from Issue No. 249, published on Sept. 25 2015)
SEPT. 21 2015 (The Conway Bulletin) – Georgia’s Central Bank said it bought $27m worth of lari to strengthen its currency. This is the 6th intervention by the Central Bank this year to prop up its currency which has lost around 37% since September 2014. It said earlier this year that it wouldn’t prop up its currency.
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(News report from Issue No. 249, published on Sept. 25 2015)
SEPT. 23 2015, ALMATY (The Conway Bulletin) — The Kazakh Central Bank presented a bill to parliament that will force people to take loans in tenge, a tactic it says is necessary to wean the economy off its addiction to US dollars.
Shaken by a 40% drop in the value of the tenge over the past 18 months, the Central Bank wants to ensure that commercial banks do not accrue a large amount of bad loans in US dollars as they did during the 2008/9 Global Financial crisis.
“This is an effort to protect customer’s rights and to decrease the rate of non-performing loans for second-tier banks,” Kuat Kozhakhmetov, deputy chairman of the Central Bank, said when he presented the bill to the parliament.
If the bill becomes law, people who have not earned their salary in a foreign currency for the 6 months before asking for a loan will will only be able to apply for a tenge loan.
According to a recent IMF study, almost 60% of the total loans issued by financial institutions in Kazakhstan are denominated in a foreign currency. The Central Bank also said that 14% of mortgages are currently denominated in foreign currencies.
People in Kazakhstan have used foreign currency loans to buy goods indexed to the US dollar or the Russian rouble, such as houses or cars. Salaries are often paid in tenge but are indexed to the US dollar.
A fall it the value of oil and a slump in the Russian economy has pressured the tenge and other regional currencies. Loans taken out in US dollars have become much more expensive to service.
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(News report from Issue No. 249, published on Sept. 25 2015)
SEPT. 23 2015, TBILISI (The Conway Bulletin) — Georgia’s Central Bank raised its key interest rate for the fifth time this year to dampen accelerating inflation.
At 7%, Georgia’s interest rate is at its highest level since December 2011. At the start of this year, Georgia’s key interest rate measured 4%.
“The monetary policy decision is based on the macroeconomic forecast, which indicates a sharp increase in the inflation expectations given the Lari depreciation against the US dollar, which raises the future risks as a result of a one-time deviation from the inflation target,” The Georgian Central Bank said in a statement.
Georgia’s lari currency has lost 37% of its value over the past year, much like other currencies in the region, and the Central Bank said that this had been a key driver for inflation which now measured around 5.4%, moving towards the top of its 5-6% target range.
It also said that the economic situation in the region was “dire” and that demand would stay weak.
“Domestic demand is also weak, as a result of both the decline in remittances and the increase in the service burden of foreign currency denominated loans,” the Bank said.
On the streets of Tbilisi, though, the economic pain was evident.
“I get my salary in lari, but I pay my mortgage in dollar. Instead of 800 we now have to pay 1200 Lari. How are we supposed to buy food?” said university administrator Anita, 37.
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(News report from Issue No. 249, published on Sept. 25 2015)
SEPT. 22 2015, TBILISI (The Conway Bulletin) — Pushing their personal differences aside, Georgia’s Central Bank chief Giorgi Kadagidze and the PM Irakli Garibashvili held a rare head-to-head meeting to discuss the increasingly poor state of the Georgian economy.
A collapse in global energy prices and a sharp fall in the performance of Russia have pressured regional economies this year but a breakdown in relations between the Central Bank and the PM’s office has also been a feature of the year in Georgia.
The Central Bank’s press office declined to confirm if this was the first time Mr Garibashvili, the PM, had visited Mr Kadagidze in 2015 but analysts said it was a rare occasion.
“It was significant, as they discussed the currency,” said Tamar Jugheli, research director at the Policy and Management Consulting Research Center. She said a management change in one of the main departments at the Central Bank had improved relations. Mr Garibashvili has criticised Mr Kadagidze over monetary policy. He also stripped the Central Bank of its power to oversee commercial banks.
Like many issues in Georgia, politics is at the heart. Mr Kadagidze was appointed by the previous government of former president Mikheil Saakashvili, irritating the current government.
Still with Georgia’s currency dropping to an all-time low and with inflation rising fast, Mr Kadagidze and Mr Garibashvili had to act. After the meeting the Bank bought $40m worth of lari and then, the following day, it increased interest rates.
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(News report from Issue No. 249, published on Sept. 25 2015)
SEPT. 18 2015 (The Conway Bulletin) — Have the Kazakh tenge and the Kyrgyz som reached rock bottom yet? This week, the tenge in Kazakhstan suffered another strong fall (-4.4%). The cost of $1 even rose above the psychological rate of 300 tenge on Sept. 16, only to settle back down to around 270 by the end of the week.
The Kyrgyz som also hit a historical high of 70/$1 on Wednesday.
And this despite repeated interventions from both Central Banks, which bought hundreds of millions of dollars in the currency market to support the tenge and som.
At the end of last week, the announcement that Dariga Nazarbayeva, the eldest daughter of Kazakh president Nursultan Nazarbayev, had been appointed as deputy PM sparked a late round of trade in the dollar market, weakening the tenge. Was this the market saying that they were worried about her promotion? Some analysts said that President Nazarbayev may be grooming her to take over the top job.
The som is struggling because the Russian economy isn’t recovering and the upcoming parliamentary elections in Kyrgyzstan are upset- ting the market.
In Georgia, the lari lost 2.4%, probably linked to general Emerging Markets weakness.
The Fed hasn’t ruled out the possibility of increasing rates by the end of the year. Such a decision would divert US dollars back to the US economy, away from Emerging Markets. The faltering economies in Central Asia and the South Caucasus need to prepare themselves for the worst.
Tightly-managed currencies in Azerbaijan, Tajikistan, Turkmenistan and Uzbekistan remained vir- tually unchanged this week. To maintain the exchange rates constant, central bankers in these countries had to heavily intervene in the currency markets.
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(News report from Issue No. 248, published on Sept. 18 2015)
SEPT. 15 2015 (The Conway Bulletin) – The Kazakh government said it would subsidise industrial companies that needed to increase salaries to match rising inflation and the falling value of the tenge. The Kazakh government has struggled to manage the economy during difficult economic times.
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(News report from Issue No. 248, published on Sept. 18 2015)
SEPT. 16 2015, BISHKEK (The Conway Bulletin) — Kyrgyzstan’s som dropped to its lowest level against the US dollar since independence, forcing the Central Bank to step in to brake its fall.
At exchange kiosks in Bishkek, the som traded at 72/$1 before recovering to around 69/$1 after the Central Bank’s intervention. Still, the fall in the som, now down 13% in the past month, has pushed up inflation and worried people.
“Food is getting more expensive, it definitely reflects on the family budget,” a 52-year-old man who declined to be named said as he left a supermarket in central Bishkek.
When the Kyrgyz government pushed the country into the Russia- led Eurasian Economic Union last month it said food prices would fall.
Emil Umetaliev, a Bishkek-based analyst, said this promise has been shown to be empty. “How can they be cheaper if in Russia they are getting more expensive because of an internal crisis?” he said.
To stop the slide, the Central Bank bought $18m worth of som but a source at the Bank told the Bulletin officials were anxious.
“The Bank made intervention but it did not particularly affect such a fast growth of dollar,” she said.
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(News report from Issue No. 248, published on Sept. 18 2015)
SEPT. 15 2015 (The Conway Bulletin) – Kyrgyz should diversify their assets, including cash, to protect themselves from the sharp swings in the value of currencies and commodities, Raushan Seitkazimova, head of the Central Bank’s monetary control unit, told media. The value of the Kyrgyz som has been fluctuating wildly, over the past few months.
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(News report from Issue No. 248, published on Sept. 18 2015)
SEPT. 15 2015 (The Conway Bulletin) – Kazakhstan’s Central Bank intervened in the money markets to stop the tenge from dropping below 270/$1. Kairat Kelimbetov, the Central Bank chief, had told the FT earlier in the week that the Bank would not intervene again after it ditched a peg to the US dollar last month. The tenge is now trading around 266/$1.
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Copyright ©The Conway Bulletin — all rights reserved
(News report from Issue No. 248, published on Sept. 18 2015)
