News brief: Tenge devaluation not in the works

The governor of the central bank of Kazakhstan said last week that the central bank does not plan to devalue the tenge sharply in 2015, reported the business weekly Panorama. 

The two main factors that would figure into a tenge devaluation are a decline in the exchange value of the Russian ruble and especially in the global price of crude oil, bank governor Kairat Kelimbetov told Majilis and reporters in Astana.  Those factors do not justify a devaluation, since the government can offset a decline in private spending by cutting taxes or spending more, Kelimbetov said.  The National Bank intends to stabilize the foreign value of the tenge throughout 2015, he added.   

The dollar value of the ruble has halved since June but probably depends on the uncertain continuation of Western sanctions against Russia over the Ukrainian crisis.  On the futures market, which reflects expectations, daily crude oil prices have fallen by as much as 55% since June.  But on the spot market, where oil is bought and sold, the annual price of Brent oil, the global benchmark, has fallen only about 12%, according to data from a United States government agency, the Energy Information Administration.  Though backward-looking, the annual spot price is more likely to affect production than the daily futures price since it is less volatile and is seasonally adjusted.  In Kazakhstan, a 10% rise in the annual Brent spot price is normally associated with a concurrent 4.6% rise in real average income (which measures the amount of goods and services that a typical household can buy).

A devaluation is an official reduction of the foreign value of the home currency.  In Kazakhstan, about 184 tenge trade for one United States dollar.  This is called the market exchange rate.  In a tenge devaluation, the National Bank would increase the number of tenge that trade for a dollar – say, to 200 tenge.  This reduces the dollar price of exports from Kazakhstan, since each buck now can buy more tenge than before.  The resulting increase in world demand for Kazakhstani oil, which accounts for a fourth or more of the country’s economy, could offset part of the loss of export revenues that was due to the fall in oil prices.

Late last week, the tenge weakened from 184.1 to 184.4 per dollar, according to xe.com.  At present, the lowest tenge value that the National Bank would permit is 188 tenge per dollar. --Leon Taylor  tayloralmaty@gmail.com

Notes

The futures price quoted above is for Oklahoma oil on the NYMEX market, to be delivered after one month, according to data from the US Energy Information Administration.  Prices for deliveries after two to four months are somewhat higher, indicating that investors expect prices to rise again by the spring.  

References

Zaryna Karymova.  Glava Natsbanka poobeshal ne provodyt’ rezkuyu deval'vatsyu.  (The head of the National Bank promised not to put into effect a sharp devaluation.)  Panorama.  January 23, 2015.

United States Energy Information Administration.  Lots of statistics.  www.eia.gov

xe Currency.  Tracks daily exchange rates.  www.xe.com