Will the National Bank
of Kazakhstan
devalue this summer?
Three things are certain in life: Death, taxes, and rumors about the tenge. The latest one says the National Bank will
soon begin to devalue the currency in small steps. For obvious reasons, this won’t occur until
after the presidential elections that were hastily called for April 26.
This easy-does-it approach might have advantages over the
Bank’s cold-turkey policy in 2009 and 2014, when it devalued the tenge immediately
by a fourth and a fifth respectively. This
time, tenge holders wouldn’t suddenly see their wealth vanish in terms of
foreign purchasing power. Also, since it
is not certain when the Bank would take its last step, or how large each step would
be, speculators might delay their short sales of tenge until they knew more –
sales that otherwise might have forced the Bank to devalue sooner than it would
have liked. Finally, devaluing in
increments would enable the head of the Bank, Kairat Kelimbetov, to keep his
promise made in January not to devalue sharply unless things changed radically.
The seeming flaw of the incremental approach – that it
creates uncertainty – applies to most monetary policies that are meant to
affect output. One goal of devaluation
is to encourage foreigners to buy Kazakhstan’s exports by
artificially lowering their dollar price – that is, by leading buyers to wonder
if exports were as costly as they had thought.
Yet the timing is curious.
Tenge devaluation makes sense when the central bank faces the Forex
Trifecta: A declining oil price, a
weakening ruble (since Russia is a leading partner in trade), and a drying up of dollar reserves. But oil prices are rising. The monthly spot price of Brent crude in
Europe, a common benchmark, increased from $47.76 per barrel in January to $58.10 in
February, up by about a fifth, according to the United States Energy
Information Administration. And the official
ruble has been strengthening steadily in terms of the tenge and the dollar, by
roughly a fourth since early February, according to daily data from the Russian
central bank. Finally, Kazakhstan’s hard
currency reserves are an embarrassment of riches. Assets of the National Oil Fund alone, consisting
mainly of export taxes, were $69.7 billion in March. This was down by 5% since January
but still equal to almost 14 months of imported goods and services, according
to the National Bank of Kazakhstan. Net
international reserves were $28.3 billion -- up 1.4% since January and equal to
five or six months of imports. There’s no
reason to panic.
Perhaps the Bank is reacting to long-run trends in oil and
currency markets – that is, to annual prices.
That would be prudent but difficult to explain to the public.
The bucks stopped here
Or maybe, as the street says, the devaluation is for
political reasons, not economic ones. This
would call the Bank’s credibility into question. Again.
Apropos of this, an American story might offer
pointers. In the 1940s, the Federal
Reserve helped the government to pay for World War II cheaply by purchasing its
bonds (that is, by lending it money) at low interest rates. In the early 1950s, President Harry Truman
wanted to repeat the trick for the Korean War.
But the Fed worried that printing more money would aggravate inflation,
so it told Truman to take a hike. Since
then, the Fed’s inherent independence of politics has never been in question,
although a few Fed governors from time to time have chosen to please the tenant
at 1600 Pennsylvania Avenue.
Unfortunately, the charter of the National Bank of Kazakhstan
makes clear that the Bank is ultimately controlled by the President, since its
head serves at his pleasure. Astana
could take a long step towards a competitive economy by making clear that the
Bank is not a political patsy. –Leon Taylor tayloralmaty@gmail.com
References
National Bank of Kazakhstan.
International reserves and assets of the National Oil Fund of the
Republic of Kazakhstan. www.nationalbank.kz
