Freed of Currency Peg, Kazakhstan Disavows Stealth Ruble Tie
Almost two years after Kazakhstan relinquished control of the exchange rate, its central bank governor says the tenge’s movement closer to lockstep with the ruble reflects the ties between the neighbors, not a new peg enforced from above.
Swings in the national currencies roil trade between the two ex-Soviet nations, whose border is the world’s second-longest after the frontier between the U.S. and Canada. But the tenge has given up a lot of ground since reaching the strongest level ever against the ruble in January 2015, losing more than half its value against its Russian counterpart since then. It hasn’t traded stronger than 5 versus the ruble for more than a year.
By matching devaluations of Russia and China in 2015, Kazakhstan dissuaded people from loading up on cheaper imports, giving local businesses an edge in fighting for market share. The suspicion now is that Kazakhstan is again steering the exchange rate back into balance, with Macro Advisory consultancy in Moscow saying the tenge is linked to the ruble “for competitiveness reasons.”
Speaking in an interview, Governor Daniyar Akishev said the National Bank of Kazakhstan is doing nothing to massage the Kazakh currency weaker. Policy makers stand by their free-float regime, with the central bank’s net interventions equal to zero.
“No tie-up exists between the tenge and the ruble,” Akishev, 41, said in Almaty last week. “There may be a correlation that’s developed historically, but we aren’t targeting the exchange rate. At any given moment, it depends on the situation in the economies of our countries.”
Kazakhstan’s central bank has moved to align monetary policy closer with its biggest trade partner after waiting until August 2015 to cut the tenge loose, more than eight months later than the Bank of Russia allowed the ruble to trade freely. By the time Akishev was appointed in November 2015, the Kazakh currency had slumped by more than 40 percent against the dollar as oil crashed.
The $184 billion economy of Central Asia’s biggest energy exporter has regained its footing as crude prices stabilized. Under Akishev’s stewardship, the central bank has cut borrowing costs twice this year after four decreases in 2016, bringing its key rate to 10.5 percent in June. Annual price growth has remained near the 8 percent upper limit of the central bank’s target corridor after slowing to within the range this year.
The 60-day correlation between the currencies of Russia and Kazakhstan is near the highest since late 2014. The tenge depreciated 0.2 percent against the ruble on Friday after a loss of 0.9 percent the previous day, according to data compiled by Bloomberg.
“The main target for us is and will be the level of prices,” Akishev said. The tenge’s current exchange rate of near 5.5 against the ruble “reflects the reality in the balance of payments of our countries and the structure of our economies and trade.”
The currencies of Russia and Kazakhstan now function as shock absorbers for the economies, protecting government revenue from swings in commodity prices. As oil took a dive into a bear market this month, the tenge and the ruble are among the world’s worst performers in June against the dollar.
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While the tenge’s real exchange rate is “undervalued” compared with late 2013, benefiting local producers, the effect has been achieved without any interventions by the central bank, which is only present in the currency market to smooth sharp fluctuations, according to Akishev.
“Our influence is neither decisive nor substantial” for the market, he said. “In this situation, it’s difficult to speak about the National Bank having any target, even in the form of a real exchange rate that could be comfortable for our policy.”
Trade has improved between the two countries, with Kazakhstan now accounting for 3 percent of Russia’s total turnover, a share it last held at the end of 2015.
The influence of Russia’s monetary policy is “substantial” for Kazakhstan, given the similarities between the economies and their performance, according to Akishev. But there’s not enough currency trading to affect the ruble-tenge cross directly, with the exchange rate calculated mostly via their levels against the dollar, he said. The focus of policy makers is less on the level between the currencies than on the balance of payments.
“Bigger imports from Russia will put pressure on the exchange rate, and the tenge would weaken in the conditions of a free float,” Akishev said.
By Nariman Gizitdinov, Bloomberg