On the Devaluation Risks

Some developments potentially much more critical for Akorda than all the protests of the past 1.5 month taken together have gone practically unnoticed amid the hyper-scandalous presidential elections and a significant upsurge of domestic political activity in Kazakhstan. We are talking about both the dramatic jump in domestic demand for the dollar and how this demand has been satisfied.

The thing is that the National Bank of Kazakhstan and its affiliated structures that include the Kazakhstan Stock Exchange (KASE) have recently lost a great deal of its transparency in the eyes of the market participants. And this factor is responsible for the growth of the distrust to the Kazakh economic policy and practices on the part of the Kazakh citizens and foreign investors. 

It looks like a number of internal and external factors (which probably include the early presidential elections) had contributed to the dramatic jump in the demand for the US dollar at the beginning of June. But the way the demand has been satisfied clearly demonstrates Akorda’s desire to preserve the internal political stability by any means possible.

By the looks of it, Akorda got scared that the unease at the domestic currency exchange market will intensify the protest sentiments in the society or cause panic among bank clients which, in its turn, may negatively affect the outcome of the elections. As a result, for the period of seven working days from June 5 to June 13 inclusively, the traded value of the US currency at the KASE spot-market constituted US$ 1942650 thousand, in other words, almost two billion. And only on June 14, 2019, it went down to $100 mln (approximately) per day, in other words, got back to “normal”.

We are anxious to hear the National Bank’s (particularly its Chairman Erbolat Dosayev’s) and the KASE’s explanations regarding what happened at the currency-exchange market in the period specified. However, more likely than not, the regulator and the stock-exchange will behave as if nothing out of the ordinary has happened. The best we can hope for is an admission that they were smoothing out the exchange rates jumps.

On one hand, it is indeed so. Moreover, the National Bank has managed to reduce the average-weighted US dollar exchange rate to less than 385 tenge starting from June 5. On the other hand, considering the past months averages, the total trade value of the US currency for those seven days should have stayed in the US$ 700-800 mln corridor, not more than that.

The question of where the stock market got the additional $1.1-1.2 mln is pointless – from the National Bank of the Republic of Kazakhstan, obviously. But if this is so, then why did the regulator choose to spend such a huge amount of money? Will it not happen in the nearest future that the regulator is, once again, forced to sell several billions of dollars which will cause yet another tenge devaluation?

In our opinion, had it not been for the National Bank’s interference, the US dollar exchange rate could have surpassed the 400 tenge mark in the period between June 3 and June 13. And, judging by the global developments, the risks of oil prices going down will grow. Therefore, the Kazakh national currency may get in the firing line.

There is no point in guessing which mark it will hit if the risks are realized – 430, 450 or even 500 tenge per dollar. What is much more important to predict is when and how Akorda will be forced to make the decision to put a stop to the “smoothing out” of the currency exchange rate.

Will it be a result of the drop of the oil prices, the reduction of the foreign currency reserves, the support of the tenge via spending the foreign currency or some kind of domestic political shock?

One way or another, in Kazakhstan, the risks for domestic and foreign investors, from the standpoint of the monetary policy transparency, seem to be much higher than say in the neighboring Russia. And this gap has recently widened even more in the wake of the cardinally different reactions on the part of Akorda and the Kremlin to the upsurge of the civil political activity. 


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