Mid February, the central bank of Kazakhstan devaluated the tenge’s exchange rate band to 185 (plus/minus 3 tenge) per USD from 155 tenge per USD. The central bank last devaluated the domestic currency in February 2009. The central bank did not introduce any foreign exchange restriction. To avoid social unrest, the government reacted quickly by imposing a temporary freeze on the price of bread and utilities and announcing an increase in public salaries by 10% effective 1 April. A move that was followed by some private companies.

Impact on country risk

The move of the central bank is surprising given the current account surplus of the oil exporter. Foreign international reserves are just below the safe threshold of three months of imports but remain sufficient. Moreover, this relatively low level is explained by the strategy of the National Fund for the Republic of Kazakhstan to invest abroad. In this context, the large devaluation aims to keep the currency in line with Russia’s rouble and boost external competitiveness of non-commodity exporters. The currency devaluation will impede somewhat the systemic commercial risk.

Analyst: Pascaline della Faille, p.dellafaille@credendogroup.com