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Kazakhstan’s Central Bank Governor on interventions into FX market

19 september 2015, 01:16
0
Kairat Kelimbetov. RIA Novosti
Kairat Kelimbetov. RIA Novosti

The country’s Central Bank is investigating into alleged speculations at the Kazakhstan Stock Exchange that have resulted in sharp fluctuations of the tenge exchamge rate recently, Kairat Kelimbetov, Central Bank Governor, told in an interview for Panorama newspaper. According to him, a couple of players have been manipulating the market.

The decision to resort to currency interventions was taken by the Central Bank September 16 once the tenge exchange rate had exceeded 300 tenge for USD 1 from 280 tenge for USD 1 a day earlier.

“There  are a couple of market players that have been manipulating the market. The investigation is under way. Before the investigation is over the Central Bank has decided to intervene. Any interventions will be publicly announced from now on. We decided to intervene September 16 as we had seen some players acting concertedly, driving the tenge downwards.  When we shifted to the free float mode for the tenge [August 20], we emphasized the free float didn’t mean the Central Bank would stay away from the market. The Central Bank is like a fire brigade, an emergency service of sort. We do have the right to intervene and we will be intervening if we see unreasonable moves in the FX market. Some interventions might be needed until the market sees a genuine and fair equilibrium point. Unfortunately, FX traders sometimes follow their lemming instincts and have to be brought to right senses. We always have enough capabilities to foil market speculations».

He reminded the Kazakh market consists of 38 banks, all of them catering to needs of their clients, including individuals. “There is certain evidence that most banks are not interested in depreciation of the tenge; with a weaker tenge they might face problems related to prudential ratios and growing NLPs (…) the Central Bank does not counteract market trends; we do understand that with oil prices falling to $30-20 per barrel, the tenge should reflect these changes. However, in the last few days we have seen quite the opposite factors such as appreciation of the Russian rouble and slowing fall of the global prices for oil”.

The currency interventions September 16 totaled $144 million. September 17 the figure stood at 270.4 million, falling to 67.2 million September 18.

August 20 the country’s Government and the Central Bank renounced the currency band policy, opting for the free floating of the tenge. The same day the national currency weakened by 26% in one day, reaching 257 tenge for USD 1.

August 20 the country’s President Nursultan Nazarbayev said that the measures to maintain the set tenge exchange rate in 2014-2015 had cost a total of $28 billion, with $10 billion spent in 2015.

A Central bank intervenes in the operations of the FX market in order to raise or lower the rate of the national currency by selling/buying foreign currency. A lower rate of the national currency can be achieved through the purchase of foreign currency; a higher rate is achieved through foreign currency sales. Governments prefer to stabilize the exchange rate because excessive short-term volatility erodes market confidence and affects both the financial market and the real goods market. When there is an inordinate instability, exchange rate uncertainty generates extra costs and reduces profits for firms.


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