Kazakhstan announces shift to floating exchange rate in 3-5 years

The Central Bank of Kazakhstan’s governor, Kairat Kelimbetov, tantalizingly announced once again that it intends to move away from its currency peg to the dollar and move towards what it called an “inflation targeting” method, implying a switch to a floating exchange rate regime. Bloomberg conducted an extensive interview with Kelimbetov where he explicitly stated that “we are moving from a fixed exchange rate to a more flexible exchange rate, but this is a three-to-five year agenda.”

Kelimbetov also dodged the question of whether the tenge is overvalued compared to the dollar, and flat out did not answer about a comparison with the ruble. Most other CIS countries devalued their currencies thanks to the decline in oil prices and the simultaneous devaluation of the ruble. Kelimbetov said that the February 2014 devaluation of 19% was a bit of a “fortuitous overshoot” that provided a cushion against oil prices and the ruble.

The currency has come under consistent pressure this year to devalue, despite authorities’ reassurance that they would not allow a one-step devaluation, most banks are preparing for a 30% drop in the value of the tenge against the dollar in the near future. The devaluation plans were derailed by the announcement of an early presidential election this past April, as well as several national solidarity holidays, which would have been completely ruined by social protests.

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