Kazakhstani National Currency Deteriorates due to Market Forces Pushing Down Value
Kazakhstan's Tenge Experiences Sharp Depreciation
Kazakhstan's national currency, the tenge, has been experiencing a significant depreciation in 2021. This trend is primarily attributed to a combination of external and internal economic factors.
Since 2015, Kazakhstan has adopted inflation targeting and allowed its currency to float freely. However, the current depreciation of the tenge appears to be driven by increased demand for foreign currency due to budget-sponsored imports and higher vacation spending, putting downward pressure on the tenge as residents and businesses convert tenge to foreign currencies.
Global economic uncertainties and influences related to US Federal Reserve policy have also impacted emerging market currencies, including the tenge. Uncertainties about tariffs and inflation dynamics have affected investor sentiment and currency stability.
The National Bank of Kazakhstan, while regarding the depreciation as "unjustified," has maintained a tight monetary policy stance around this period to preserve price and financial stability. The bank is closely monitoring foreign exchange markets and stands ready to act in the event of speculation or excessive volatility.
Fiscal injections into the Kazakhstan economy have grown by 18% year-over-year, but GDP and domestic production have not kept pace with this growth. Although domestic production is expected to catch up, imports will remain high in the short term.
The weakening of the tenge is also attributed to increased money supply and import demand. Aliya Moldabekova, a spokesperson for the National Bank of Kazakhstan, asserts that there is no sign of speculative activity in the current situation. She notes that fundamentally, there is no justification for a weakening of the tenge, as oil prices remain high, the U.S. dollar is weakening globally, and there are no external shocks.
Despite the current situation, Kazakhstan's international reserves currently stand at $52.2 billion, providing a buffer to absorb any market shocks. The National Bank of Kazakhstan categorizes factors influencing the tenge exchange rate into three main groups: fundamental, market-based, and speculative.
Moldabekova describes the fluctuations in the tenge as short-term and largely driven by seasonal and market dynamics. She emphasizes that the current weakening of the tenge is driven by market-based factors, not speculation. The weakening of the tenge is further attributed to the National Bank's decision to set the official exchange rate at 544.87 tenge per dollar and 639.2 tenge per euro for July 28.
This year's budget includes major spending on infrastructure and social projects, leading to increased demand for foreign currency. The Prime Minister and government forecasts in later years anticipate relative stability in the tenge given controlled macroeconomic policies. However, 2021 saw considerable pressure due to the factors mentioned above.
In summary, key drivers for the tenge depreciation in 2021 included increased foreign currency demand from imports and consumption, external economic uncertainties especially related to US monetary policy and tariffs, and internal fiscal and monetary policy challenges. The National Bank of Kazakhstan continues to monitor the situation closely and stands ready to act if necessary.
In the face of increased foreign currency demand from imports and consumer spending, as well as external economic uncertainties that impacted emerging market currencies like the tenge, the depreciation of Kazakhstan's national currency can be linked to various factors within the industry, finance, and business sectors. The National Bank of Kazakhstan attributes the weakening of the tenge to market-based factors, not speculation, and acknowledges fiscal injections and high import demand as contributors to the increased money supply and subsequent depreciation.
