ALMATY — 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 (Aug. 20).
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.
“The Government and the National Bank today made a statement on the transition to a free floating exchange rate for the tenge,” he said.
“This means, of course, that the price will be determined by the market. Let us face it, this is a necessary measure, there was no other alternative. Crisis always brings about change.”
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 far more expensive compared to their rivals. In northern Kazakhstan, reports have filtered through over the past year of a sharp rise in Kazakhs shopping across the border in Russia.
But the devaluation will also damage both the reputation of the Kazakh Central Bank and the tenge currency.
This is its second devaluation in 18 months. In February 2014, the Central Bank knocked 20% off the value of the tenge overnight. On Feb. 10 2014, the tenge traded at 155/$1. Now the tenge is worth 251/$1. This means that since February 2014, the tenge has lost 39% of its value.
(Report by James Kilner, editor of The Conway Bulletin, a weekly newspaper covering Central Asia and the South Caucasus.)