National Bank of Kazakhstan decided to conduct foreign exchange interventions in order to stabilize the situation on the domestic currency market.
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John J. Hardy
Head of FX Strategy, Saxo Bank
The reason the tenge peg was broken is the same reason for any other peg breaking – the reality of the situation simply no longer supported the tenge maintaining its valuation amid collapsing export revenues from weak oil prices, as oil is the lion’s share of Kazakhstan’s exports. When a country like Kazakhstan is significantly dependent on a given basket of exports for its hard currency revenues, it is more useful to think of the country’s currency being de facto pegged to that basket of commodities than to anything else.
The People’s Bank of China devalued the Chinese yuan overnight by almost 2% and announced a significant liberalisation of the yuan’s exchange rate regime, a move that has roiled currency and asset markets globally
The best policy solution would be to renormalize interest rates and to allow massive debt restructurings from the inevitable pain that this would cause. The downside would be an ugly and deep recession as over-indebted and weak players are allowed to fail. The upside would be the subsequent strong growth phase as capital is allocated appropriately, rather than unjustly to any debtor with a pulse in our crazy twilight world of zero or negative rates. But this solution is politically the most unappetizing possible so it is also the lease likely scenario.