Tag Archives: central bank

Georgian MPs vote against veto

SEPT. 3 2015 (The Conway Bulletin) – Georgia’s parliament voted to overrule a veto by President Giorgi Margvelashvili that would have blocked the adoption of a controversial bill that stripped the Central Bank of its supervisory powers over the commercial banking sector. International organisations have criticised the bill as politically-motivated. The Central Bank has argued with the government over economic policy.

ENDS

(News report from Issue No. 246, published on Sept. 4 2015)

Comment: Kazakhs steady themselves for the impact of Devaluation 2

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)

Kazakh Central Bank picks new interest rate

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.

ENDS

(News report from Issue No. 246, published on Sept. 4 2015)

Kazakh Central bank unveils new rate

SEPT. 3 2015 (The Conway Bulletin) – Kazakhstan’s Central Bank said that it was introducing a new key interest rate that would be its main tool for manipulating monetary policy. It set the new refinancing rate at 12%.

ENDS

(News report from Issue No. 246, published on Sept. 4 2015)

Kazakhstan devalues the tenge by 23%

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.

ENDS

(News report from Issue No. 244, published on Aug. 21 2015)

Kazakh Central Bank buys 10% stake in Kashagan oil project

JUNE 30 2015 (The Conway Bulletin) – The Kazakh Central Bank bought a 10% stake in Kazmunaigas from the country’s sovereign wealth fund Samruk Kazyna for 750b tenge ($4b), a move analysts said was designed to help the state- owned energy company pay off debts generated by a sharp fall in oil prices.

This is the second reorganisation of Kazmunaigas since June. It earlier announced the sale of half its 16.8% stake in the Kashagan oil project to Samruk-Kazyna for $4.7b.

Analysts at Halyk Bank, a Kazakh bank, said the latest move shifted debt once again from Kazmunaigas to Samruk Kazyna to the Central Bank.

“If the first transaction raised the net debt of Samruk-Kazyna, the second lowered Samruk- Kazyna’s net debt, and the credit risk. By divesting of Kazmunaigas, Samruk-Kazyna reduced the most expensive part of its debt,” Halyk Finance senior analysts Sabit Khakimzhanov and Gulmariya Zhapakova said in a note to clients.

Delays at Kashagan and a sharp fall in oil prices have worsened Kazmunaigas’ financial affairs.

But, although unprecedented, the Central Bank’s purchase will change little in Kazakhstan’s oil sector. The two transactions may have helped Kazmunaigas achieve a better financial position in the short term, but both moves are temporary.

ENDS

(News report from Issue No. 242, published on Aug. 7 2015)

Kyrgyzstan cuts interest rates

JULY 28 2015 (The Conway Bulletin) – Kyrgyzstan’s Central Bank cut its main interest rate to 8% from 9.5% because of a slowdown in inflation. The Central Bank said annualised inflation was now hovering around 6%, nearly half the level seen at the beginning of the year. Kyrgyzstan, like the rest of the region, has been coping with the fall out of a decline in the Russian economy.

ENDS

(News report from Issue No. 242, published on August 7 2015)

Georgian parliament passes banking law

JULY 17 2015 (The Conway Bulletin) – Georgia’s parliament passed a final reading of a bill that strips supervision of the country’s commercial banking sector from the Central Bank. The World Bank had urged the government to drop the bill. President Giorgi Margvelashvili now has to sign the bill into law although he has said he may veto it.

ENDS

(News report from Issue No. 241, published on July 23 2015)

Kazakh Central Bank widens tenge trading corridor

Kazakhstan’s Central Bank chief Kairat Kelimbetov extended the bandwidth that the tenge could trade against the US dollar to 182-198 from 182-188, effectively giving it room to devalue by over 5%.

Hours after Mr Kelimbetov’s statement, exchange bureaus in Kazakhstan had already upped the price of $1 to over 188 tenge, breaking the psychological 187 value it had been pegged around for so long.

A drop in the value of the Russian rouble and the price of oil has pressured the tenge. The Kazakh Central Bank has stood firm, though, and defended the value of its currency while neighbours have devalued.

Still, Mr Kelimbetov said external pressures had triggered the bandwidth extension and that the move was designed to shift the tenge towards a full free-float over the next 12 months.

“This corridor allows the currency to fluctuate independently of the negative scenarios that may take shape outside Kazakhstan,” he said.

Mr Kelimbetov, though, said he didn’t see the tenge dropping below 192 against the dollar in the next 6 months.

The government has said that it wants its monetary policy to target inflation rather than a tenge-US dollar rate.

This bandwidth extension follows on from a gentle recalibration of the tenge. The Central Bank has allowed it to lose a couple of percentage points in value against the US dollar this year. In February 2014, the Kazakh Central Bank devalued overnight by 20%.

Azerbaijan’s Central Bank cuts interest rates

JULY 10 2015 (The Conway Bulletin) – Azerbaijan’s Central Bank cut its key interest rate by 50 basis points to 3% to give its non-oil sector a boost.

Like other countries in the region, Azerbaijan has been trying to cope with an economic downturn triggered by a fall in Russia’s economy and a drop in the price of oil.

The Central Bank said Azerbaijan’s economy had stabilised since it devalued its manat currency by a third in February.

“The Azerbaijani economy remains resilient amid recent processes in the global economy and in the region continuing its stable growth,” the Azerbaijani Central Bank said in a statement.

“The monetary policy can be further eased given the acceptable level of inflation and dynamics of money supply.”

The cut in interest rates, though, is likely to put more pressure on the manat currency. This was momentarily relieved by the devaluation. Since then, data from the Central Bank has shown it has continued to spend heavily propping up its currency, although there was a rebound over the past few months which may have prompted the interest rate cut. Azerbaijan’s foreign currency reserves now measure $8.5b compared to 13.7b at the end of 2014.

Azerbaijan’s economy is skewed towards oil and gas.

ENDS

(News report from Issue No. 240, published on July 16 2015)