Kazakhstan central bank on why fixed currency exchange rate had to be renounced

Kairat Kelimbetov, the country’s Central Bank Governor, has explained the reasons behind the today’s decision of the Government and the National Bank to renounce the currency corridor, Tengrinews reports.

“Inflation targeting is another type of monetary policy that rests on the inflation rate in the mid run, rather than on the currency exchange rate (…) we’ve been preparing to shift to inflation targeting in 6-12 months, and such a move implies that the currency corridor has to be renounced. The floating exchange rate means the exchange rate is defined by the demand and supply (…) the new system enables to respond to the situation in the internal FX market on a daily basis, with the exchange rate reflecting macroeconomic fundamentals,” Mr. Kelimbetov said.

“There were heated debates over how overestimated or underestimated the currency was (…) now with the exchange rate being defined by the market forces, there will be no such speculations. And the pricing will include all the currency devaluation expectations. Players of the financial market will be more focused on their core business operations. Hopefully, banks will resume lending operations," he added.

From August 20 the National Bank and the Government have decided to implement a new monetary policy based on inflation targeting and to renounce the earlier practiced currency corridor, the country’s PM Karim Massimov said in the government sitting today.

He emphasized the exchange rate for the tenge would depend on the demand and supply in the FX market driven by both internal and external economic factors.