Kazakhstan: An Unexpected Devaluation Of The Tenge

The National Bank of Kazakhstan (NBK) announced unexpectedly on February 11 that it would allow a significant devaluation of the tenge currency against the US dollar. The unit plunged from KZT155.56/US$ on February 10 to around KZT185.00/US$ at the time of writing.

The NBK cited the weakness of the Russian rouble, a narrowing current account surplus, and capital fight as reasons for the devaluation, which took 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.) Since Kazakhstan has a healthy reserve buffer, we believe the currency 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. The devaluation itself is only likely to have a short-term impact on export competitiveness. In Business Monitor Online today, we discuss several key macroeconomic implications of the tenge devaluation.