SEPT. 4 2015 (The Conway Bulletin) – China agreed to buy $470m worth of Tajik somoni, media reported, a currency swap designed to prop up Tajikistan’s weakening currency. The somoni has been losing value this year.
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(News report from Issue No. 247, published on Sept. 11 2015)
SEPT. 8 2015, ALMATY (The Conway Bulletin) — Kazakhstan’s government said that it would increase salaries for teachers by 20-50% depending on their qualifications, another indication that the devaluation of the tenge is spurring inflation.
Announcing the pay rise at a school in Astana, deputy PM Berdybek Saparbayev said that it showed the government cared about its workers. “We have very good news for our teachers,” media quoted him as saying. “Salaries will be increased from 20 to 50% starting from 2016.”
The Kazakh Central Bank has devalued the tenge twice since February 2014.
It is now worth around 40% less than it was before the first devaluation and economists have been warning that inflation will shoot up.
Companies have already been raising salaries and it was only a matter of time before the government put up pay for its thousands of employees.
Other key workers, such as doctors and nurses, have also been promised large tenge pay rises.
The problem for the Kazakh government is that with oil prices low and production declining, it may struggle to pay or all the rises.
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(News report from Issue No. 247, published on Sept. 11 2015)
SEPT. 11 2015 (The Conway Bulletin) — The Kazakh tenge and the Kyrgyz som dropped to record lows this week, as economies in Central Asia and the South Caucasus continued to show structural weaknesses.
By the end of Friday, the tenge traded at around 264/$1, down from 240/$1 at the start of the week. That’s a drop of 10%. The Kyrgyz som fared slightly better but still dropped through the 67/$1 barrier. A week earlier it had traded at around 65.5/$1.
Over the border in Tajikistan, the somoni held its own. This may have had something to do with a massive cash injection from China. It agreed to buy 3b yuan ($470m) worth of somoni in a so called currency swap deal. This is a thinly disguised mechanism to prop up the ailing somoni which has lost 17% of its value this year.
In the South Caucasus the currencies were broadly stable, although the Georgian lari lost some ground, falling to around 2.40/$1 compared with a price of around 2.36/$1 a week earlier.
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(News report from Issue No. 247, published on Sept. 11 2015)
SEPT. 4 2015 (The Conway Bulletin) – Azerbaijan’s Central Bank spent nearly $1.2b defending the value of it manat currency in August despite devaluing it by a third earlier in the year.
With oil prices, the key driver of Azerbaijan’s economy, stubbornly hovering around 7-year lows, the data will add more pressure onto the currency and suggests that another devaluation may be possible. Across the Caspian Sea, oil-exporter Kazakhstan effectively devalued its currency for a second time last month after trying to defend it for over a year.
Reuters quoted a high-placed source at the Azerbaijani Central Bank as saying: “August 2015 was difficult from a financial point of view. The economies of large countries of the world declined and the price of oil also fell on world markets, which influenced the state of the manat.”
The Central Bank data showed that its reserves had fallen to $7.31b by the end of August from $8.5b at the end of July.
The South Caucasus and Central Asia region is trying to cope with a sharp decline in its economy. Suppressed oil prices and a recession in Russia have dragged down growth. Azerbaijan with its dependency on oil has suffered more than most.
The latest data means that the Azerbaijani Central Bank has spent 42% of its total reserves this year.
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(News report from Issue No. 247, published on Sept. 11 2015)
SEPT. 3 2015 (The Conway Bulletin) – Umut Shayakhmetova, chairman of Halyk Bank, said the devaluation of the tenge last month would hit businesses hard and that the impact would be heavier than a devaluation in 2014. “It will affect the economy. Our clients will experience a drop in sales,” media quoted her as saying at a press conference.
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(News report from Issue No. 246, published on Sept. 4 2015)
SEPT. 2 2015 (The Conway Bulletin) – The Kyrgyz som lost 5.4% of its value on Sept. 1 falling to 66 som to $1, the biggest fall by any currency in Central Asia and the South Caucasus over the past week and the lowest value for the som against the US dollar for at least a decade.
This was also the som’s biggest one-day loss since March 2014. The Kyrgyz government, like the rest of Central Asia, has been battling to defend its currency against a sharp fall in the value of the Russian rouble, still the main driver of regional economic growth.
It’s unclear what pressured the Kyrgyz som to fall so severely but a few days earlier the head of the Central Bank Tolkunbek Abdygulov had said that the currency had dropped by 10.3% in 2015 despite the the government spending nearly $180m to protect its value.
“The National Bank will have enough reserves to avoid sharp fluctuations in the exchange rate of the som. Now the situation on the market is stable. There are no reasons for anxiety and panic,” media quoted Mr Abdygulov as saying on Aug. 25.
His statement and the subsequent fall in the value of the som suggest that the Kyrgyz Central Bank may be struggling to maintain its value.
Across the border in Kazakhstan, the Kazakh tenge has been stable at a level of 242/$1 during the past week, down from the a high of 252/$1 in August. The Kazakh Central Bank’s decision to adopt a new benchmark interest rate policy on Sept. 2, did not appear to have a significant impact on the exchange rate.
Elsewhere in Central Asia, the Tajik somoni and the Uzbek sum remained substantially unchanged. Currencies in the South Caucasus kept their against the US dollar throughout the week, fluctuating by just 1%.
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(News report from Issue No. 246, published on Sept. 4 2015)
SEPT. 4 2015 (The Conway Bulletin) – Timing is everything and fortune favoured me last month.
By chance, I flew into Almaty 24 hours after Kazakh President Nursultan Nazarbayev and Central Bank chief Kairat Kelimbetov had released the tenge from its US dollar peg.
This effectively triggered a 23% devaluation of the currency. I would be able to experience Ground Zero in the latest Emerging Markets currency crisis. If you’re a journalist, this is a good thing.
But if my timing had been fortunate, Mr Nazarbayev and Mr Kelimbetov hadn’t been so lucky. They had overseen an earlier devaluation of the tenge, let’s call this Devaluation 1, which hadn’t worked out. The current currency crisis, Devaluation 2, is a direct result of this mismanagement.
Without warning Mr Nazarbayev and Mr Kelimbetov had devalued the tenge by 20% in February 2014, hoping to make the Kazakh economy more competitive. The timing was poor, though, and within weeks Russia had become a pariah state in the eyes of the West because of its support for rebels in east Ukraine. Sanctions followed, denting Russia which is still the main economic driver in Central Asia. Within another six months oil prices collapsed and the Russian rouble went into free-fall.
The original Nazarbayev-Kelimbetov devaluation strategy, was undermined.
And this forced them into a corner. Defying economic logic and trying to rescue their own pride, they defended the new tenge-dollar peg despite neighbouring currencies sinking and oil prices flat-lining.
In the end, Mr Nazarbayev and Mr Kelimbetov bowed to the inevitable. The tenge is now around 39% cheaper than it was in January 2014.
On the streets of Almaty, ordinary Kazakhs generally greeted the devaluation with a shrug. There was also a palpable sense of relief. A second devaluation was always going to happen. The day after the devaluation, the run on the exchange kiosks was for tenge which signalled that most people thought it had bottomed out and wouldn’t devalue further.
And, crucially, it felt as if people had seen it all before.
We know what is going to happen next. The fallout from Devaluation 1 will guide us through the fallout from Devaluation 2. There will be price inflation, followed by salary rises. There will be job losses and the competitiveness generated by the devaluation will recede.
The major difference now is that the tenge currency is, theoretically at least, floating free.
By James Kilner, Editor, The Conway Bulletin
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(News report from Issue No. 246, published on Sept. 4 2015)
SEPT. 2 2015 (The Conway Bulletin) – Kazakhstan’s Central Bank picked the overnight repo rate as its benchmark interest rate and main tool for manipulating monetary policy, setting it at 12%.
The decision came two weeks after the Central Bank allowed the tenge to free float, abandoning the peg to the US dollar. The free-float pushed the value of the tenge down by 23%, the second devaluation in less than two years.
“This rate is aimed at directing nominal rates in the money market and will become a key instrument of the credit and monetary policy, in the new inflation-targeting regime,” the Central Bank said in a statement.
The tenge traded at around 240 to $1 immediately after the new interest rate was announced, having strengthened from 252 to $1 after the US dollar peg was ditched in August. By comparison, in February 2014, before the first devaluation, the tenge traded at 155 to $1.
Analysts welcomed the relatively high benchmark interest rate, saying that the tenge needed this level of support.
Sabit Khakimzhanov, head of research at Halyk Finance, said that the Central Bank may even need to increase this key interest rate by one percentage point to 13%.
“The interest rate in the money market is the only instrument left at the disposal of the NBK (National Bank of Kazakhstan) to manage inflation and the exchange rate,” he said.
“Only by keeping the rates credibly high, that is, at a level sufficiently high to enforce the necessary discipline and for a sufficiently long time. The interest rate corridor 12-14% meets these requirements.”
Other analysts said the high interest rate may encourage Kazakhs to keep their money in the bank.
“The high rate levels are clearly seen as securing the banking system from deposit outflows and anchoring inflation expectations,” Dmitry Polevoy, a Moscow-based economist at ING Groep NV, told Bloomberg News.
Previously the key interest rate had been the ineffective refinancing rate set at 5.5%.
Earlier this year the Kazakh government said that targeting inflation was going to be the main driver of its future economic policies.
The problem is that with the tenge devaluing and with oil prices remaining stubbornly low, the Kazakh government has already said that inflation is likely to climb above its 6-8% corridor target.
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(News report from Issue No. 246, published on Sept. 4 2015)
AUG. 20 2015 (The Conway Bulletin) – Shares in Kazakh copper miner KAZ Minerals, formerly called Kazakhmys, rose by 20% on the London stock exchange immediately after Kazakhstan’s government said that it would allow its tenge currency to free-float. The announcement knocked 23% off the value of the tenge, giving exporters a much needed boost.
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(News report from Issue No. 244, published on Aug. 21 2015)
ALMATY/Kazakhstan, AUG. 21 2015 (The Conway Bulletin) — Kazakhstan gave up its defence of the tenge by ditching a peg to the US dollar which had cost it billions to enforce, a move that knocked 23% off the currency’s value .
Businesses, policy makers and analysts will now be watching for a subsequent rise in inflation, as well as possible social unrest, in Kazakhstan.
At a government meeting broadcast on national television, Kazakh President Nursultan Nazarbayev said that the depreciation of the Russian rouble and a sharp fall in oil prices in the past year meant that it was becoming far too costly to defend the tenge.
“Let us face it, this is a necessary measure, there was no other alternative. Crisis always brings about change,” he said.
This is a major policy shift for Kazakhstan which had been alone in the Central Asia and South Caucasus region in stubbornly defending its currency. Perhaps the sudden devaluation of the Chinese yuan earlier this month was the trigger for the Kazakh devaluation.
Kazakh exporters had been struggling as their products became more expensive.
The devaluation will also damage the reputation of the Central Bank and the tenge. This is its second devaluation in 18 months. Since February 2014, the tenge has lost 39% of its value.
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Copyright ©The Conway Bulletin — all rights reserved
(News report from Issue No. 244, published on Aug. 21 2015)
