Kazakhstan: Central Bank intervenes to stabilize currency

Kazakhstan’s Central Bank just sold another $144 million in dollars from its reserves attempting to stabilize the tenge, blaming the 1.2% daily decline on the actions of “speculators.” Central Bank governor Kairat Kelimbetov allowed on August 20 of last month for the currency to float freely after the Chinese Central Bank allowed the yuan to decline relative to the dollar. The other factors at play are the large price declines in oil benchmarks, and the impact of sanctions on Kazakhstan’s biggest trading partner, Russia. The transition to a freely floating currency caused the value of the currency to plunge some 23% in one day, the most on record since the currency’s creation, and surpassing February 2014’s devaluation of roughly 19%.

Today’s sale of foreign exchange has stabilized the currency, but the issue has created unrest and popular anger at the Central Bank, and Mr. Kelimbetov in particular, who as recently as July had promised that there would be no additional devaluations. Kelimbetov argued that few within Kazakhstan would actually suffer as a result of the decline, remarking that 75% of savings accounts are denominated in dollars, and most businesses external debt (some 70%) was denominated in the tenge, meaning that both sides will see appreciation and savings. However, this will also lead to rampant inflation and any income in the future will be subject to this increasing trend.

But this market-driven approach has little sway in Kazakhstan, where the culture is still predominately Soviet. Nazarbayev’s regime is likely attempting to manage the situation so as not to repeat the oil worker’s strike in Zhanaozen in 2011, which ended in bloody clashes that left country in deep fear of social unrest.

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News Briefs: 

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