Macro Implications Of Tenge Devaluation

The National Bank of Kazakhstan (NBK) announced unexpectedly on February 11 that it would allow a significant devaluation of the Kazakh tenge against the US dollar, which saw the currency plummet from KZT155.56/US$ on February 10 to KZT185.87/US$ at the time of writing. The NBK cited weakness of the Russian rouble, a narrowing current account surplus and capital fight as reasons for the devaluation, which took consensus and markets by surprise (unlike the devaluation back in 2009 the 12-month non-deliverable forward contract for the tenge showed little sign of an impending devaluation), and since they have a healthy reserve buffer we believe the unit is likely to stabilise around current levels over the short term.

However, the longer-term trajectory is harder to call at this stage, as it will largely depend on the extent to which the authorities are willing to implement reforms to boost domestic productivity, with the devaluation likely to only have a short-term impact on export competitiveness. Nevertheless, we do see several key immediate macro implications of the devaluation.

Macro Implications

Surprise Move
Kazakhstan - KZT/US$, Exchange Rate

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Geography: Kazakhstan

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