Tag Archives: currency

Armenia cuts interest rates to counter low prices

NOV. 10 2015 (The Conway Bulletin) – Armenia’s Central Bank lowered its key interest rate by half a percentage point to 9.75%, its lowest level since January, because of slowing inflation.

The interest rate move highlights the delicate balance that Central Banks across Central Asia and the South Caucasus are having to strike between defending their currencies and stimulating growth to navigate through a deepening economic crisis.

The Central Bank said a drop in commodities prices and slowing global demand had dented price growth.

It said that inflation last month measured 0.4%, compared to 1% in October 2014. Overall annualised inflation measured 1.9% for the 12 months to the end of October.

“The board estimates that this trend will continue in the coming months and will have a deflationary impact on domestic prices,” the Central Bank said of weakening global commodities prices.

Armenia’ currency, the dram, has dropped by 15% this year against the US dollar. Its interest rates had risen to 10.5% in February but prices in Armenia have slowed, dragging down overall inflation.

The biggest problem for Armenia, like most of its neighbours in the South Caucasus is the recession in Russia.

This has hit vital remittance flows and also savaged is key export market. The Armenian dram is now overvalued against the Russian rouble and demand inside Russia has also dropped, hitting overall export potential.

This month, as the Bulletin reports in this week’s Business News, the country’s biggest fish farm business declared itself bankrupt. Its biggest market had been Russia and this market had disappeared.

ENDS

(News report from Issue No. 256, published on Nov. 13 2015)

Kazakhstan wracks up $4b deficit in 2015

NOV. 11 2015 (The Conway Bulletin) – Kazakhstan wracked up a $4b current account deficit in the first nine months of 2015, the Central Bank said, a direct consequence of the fall in the price of oil and gas — its main exports.

This deficit compares with a $6b surplus in the same period last year and shows the impact of the collapse in energy and commodities prices.

The volume of Kazakhstan’s oil and commodities exports was the same in the first nine months of this year compared to last year but they dropped, heavily, in value, earning Kazakhstan far less cash.

The Central Bank data will intensify pressure on the Kazakh government to diversify its economy away from oil and gas.

And Kazakhstan’s monetary policy also played a role in current account deficit too.

Until the Central Bank abandoned its US dollar peg in August, after stubbornly refusing to devalue alongside the Russian rouble, Kazakh exports to Russia were just too expensive. And this hurt Kazakh industry. Russia is one of its main export market.

And this showed up in Kazakhstan’s trade balance. Although still positive, it shrank by almost two thirds. In Jan-Sept 2015, Kazakhstan’s exports exceeded imports by $10.7b, a drop from $30.6b during the same period in 2014.

These figures are a stark reminder of the impact of the regional economic malaise on Kazakhstan. The 40% devaluation of the tenge after the Central Bank ditched its US dollar peg will help Kazakh exporters but the government really needs an increase in oil and gas prices to restore its revenues.

ENDS

(News report from Issue No. 256, published on Nov. 13 2015)

Uzbek sum drops

NOV. 9 2015 (The Conway Bulletin) – Uzbekistan’s Central Bank dropped the value of its sum currency to 2,706 sum/$1, down from 2,635/$1, a drop of 2.6%. On the Black Market, the dollaruz.com website reported that the fall was even greater. Currencies across Central Asia are under increasing pressure from a fall in the value of commodities and a recession in Russia.

ENDS

(News report from Issue No. 256, published on Nov. 13 2015)

Kazakhstan to give state workers pay rise, stoking inflation

NOV. 10 2015 (The Conway Bulletin) – State workers in Kazakhstan will receive pay rises next year of 7-29% to offset the devaluation of the tenge, media reported quoting social development minister Tamara Duysenova. The figures show just how pronounced the anticipated devaluation-linked inflation is likely to be.

The tenge has fallen by 40% in value since its US dollar peg was ditched in August and analysts have warned of a corresponding surge in inflation.

This has already begun to seep through. The Central Bank said that annualised inflation jumped to 9.2% in October, double the rate in September. The announcement on the size of the state pay rises, though, suggests more price rises are likely.

Most of the state employees that Ms Duysenova said would receive a pay rise were doctors, nurses and teachers.

ENDS

(News report from Issue No. 256, published on Nov. 13 2015)

Business comment: A dangerous ripple effect

NOV. 13 2015 (The Conway Bulletin) — The whole post-Soviet region has faced a steep economic downturn over the past year, leading to regional trade imbalances that have travelled across borders.

Initially, the fall in the value of the Russian rouble hit the Kazakh tenge. Despite a 20% devaluation in Feb. 2014, the tenge’s peg to the US dollar made it increasingly expensive against the rouble. When the rouble started to lose double- digit value against the US dollar, the tenge held its US dollar trading point, making it increasingly expensive. For the first eight months of this year, cheap Russia goods flooded Kazakhstan.

Eventually, in August, the Kazakh Central Bank effectively ordered another devaluation by ditching a US dollar peg. The graph below illustrates this clearly. It shows the rouble/$1 rate and the rouble/tenge rate matching each other until August. The value of the rouble, according to the graph, halves against the US dollar and the tenge.

In August, though, there is a sharp correction in the trading rate of the rouble/tenge. It diverges, violently almost, with the rouble/$1rate. The graph shows that the tenge is still stronger than the rouble compared to June 2014, but the differential is reduced.

And this is where the ripple effect carried through to neighbouring Kyrgyzstan.

Thee blue line on the graph represents the rouble/som rate. It, broadly, matches the peaks and troughs of the rouble/$1 rate, suggesting an informal peg to the US dollar.

The Kyrgyz Central Bank, though, has clearly tried to devalue the som independently too, as the rouble/som rate diverges slightly from the rouble/$1 rate.

The yellow line shows the tenge/som rate, and clearly depicts the change in relative values of the two neighbours’ currencies. The som has been weaker against the tenge for most of the year, as shown by the fairly shallow but pronounced trough. This changes after the tenge devaluation in August.

A currency domino effect, although slower than analysts had predicted, is rippling through Central Asia. The rouble is an optimal benchmark to observe this phenomenon.

ENDS

(News report from Issue No. 256, published on Nov. 13 2015)

Kazakhstan helps mortgage holders

NOV. 9 2015 (The Conway Bulletin) – Under a scheme designed to help people in Kazakhstan who hold mortgages in US dollars cope with the devaluation of the Kazakh tenge, the Central Bank said that it had refinanced 3,500 mortgages by Nov. 1. The programme will run until March or April 2016.

ENDS

(News report from Issue No. 256, published on Nov. 13 2015)

Inflation spikes in Kazakhstan

NOV. 2 2015 (The Conway Bulletin) – Inflation in Kazakhstan grew by 5.2% in October, compared to the previous month, after businesses increased their prices on goods and services across the country to balance a devaluation in the value of the tenge currency. The tenge has now lost half its value against the US dollar since Feb. 2014. Year-on- year inflation now stands at 9.4%.

ENDS

(News report from Issue No. 255, published on Nov. 6 2015)

Low oil prices and rising costs hit KMG EP profit

NOV. 5 2015 (The Conway Bulletin) — London-traded KMG EP said sustained low oil prices had halved revenues in the first nine months of the year compared to the same period in 2014, a heavy warning for Kazakhstan that the near-term outlook for its economy is poor.

KMG EP saw its revenues fall, in US dollar terms, by 54% to 349b tenge ($1.8b), mirroring a 48% fall in Brent oil prices. Net profit dropped to 138b tenge ($703m), a fall of 49% in US dollar terms.

And it said that oil prices would remain weak.

“There is a risk that prices for the domestic market supplies for October to December 2015 will be significantly lower than the prices set in September 2015,” KMG EP said in the report.

KMG EP is among the top three producers of oil in Kazakhstan and participates in several international oil and gas projects.

It’s one of the Kazakh government’s main cash earning companies and its financial performance acts as a barometer on Kazakhstan’s economy. If Kazmunaigas, and KMG EP, is doing well, the Kazakh economy is generally doing well too.

KMG EP also said that in tenge terms, its salary costs have increased by 22%.

“This was largely due to an indexation of salary for production personnel by 7% in January 2015, the introduction of a Unified System of Wages for production employees from April 2014 onwards, a 10% increase in wages related to the devaluation of the Tenge from April 2014 onwards, and an increase in production bonuses from 25% to 33% for supporting production personnel from September 2014 onwards,” KMG EP said.

The Kazakh Central Bank stripped the tenge of its peg to the US dollar in August, effectively allowing the currency to devalue by 25%,a second devaluation in two years which has halved the tenge’s value. Businesses have had to promise employees salary increases to compensate for the fall in the value of the tenge, pushing up inflation across the country.

ENDS

(News report from Issue No. 255, published on Nov. 6 2015)

Azerbaijani currency reserves fall

NOV. 5 2015 (The Conway Bulletin) – Azerbaijan’s foreign currency reserves fell 3% in September to just over $7b, media reported, highlighting just how much cash the Central Bank has spent propping up the manat. Azerbaijan’s Central Bank has now spent half its currency reserves in the past year.

ENDS

(News report from Issue No. 255, published on Nov. 6 2015)

Georgia’s Central Bank raises interest rates

NOV. 4 2015 (The Conway Bulletin) – Georgia’s Central Bank increased its key interest rate to 7.5%, its highest level since Sept. 2011, to try and dampen rising inflation.

In January, Georgian interest rates were 4%, demonstrating just how aggressively its Central Bank has pushed up the cost of borrowing.

In a statement, the Georgian Central Bank said that Consumer Price Inflation now measured 5.8%, pushed up by a rise in the cost of imported goods and a jump in electricity prices.

“According to the current forecast, in the beginning of 2016 the inflation will remain above its target value, will start decreasing afterwards and will return to its target value of 5% in the second half of 2016,” the Central Bank said in a statement.

This year, similarly to other cur- rencies in the region, the Georgian lari has lost around 28% of its value.

ENDS

(News report from Issue No. 255, published on Nov. 6 2015)