Why intervene with tenge free float?

Deputy Chairman of the National Bank of Kazakhstan Kuat Kozhakhmetov has commented on the recent interventions of the country's financial regulator, Tengrinews reports.

At the sidelines of a meeting in the Majilis, the lower chamber of the Parliament meeting Kozhakhmetov was asked about viability of the recent exchange rate interventions in the wake of free floating tenge.

"As for interventions, the sums of money spent on interventions were made public. Was it viable to conduct interventions last week? First of all, according to the National Bank, there was a speculative compound in the formation of the exchange rate. The exchange rate was groundlessly growing. So the National Bank intervened to regulate this issue. There were possible speculations, that is why the National Bank intervened," Kozhakhmetov said.

Since transitioning from pegged exchange rate corridor to free float policy on August 20, the National Bank of Kazakhstan has conducted four interventions. The first exchange rate intervention took place on September 16 after the tenge-per-dollar exchange rate reached 300 tenge. Back then, the National Bank spent $144 million to mitigate the exchange rate spike.

Commenting the intervention, Kazakhstani economist Olzhas Khudaibergenov said that it would not be the last time the Bank resorted to such measures. He expressed concern that the Bank’s attempt to regulate the depreciating national currency was a waste of money.

Later, confirming Khudaibergenov’s fears, on September 17 and 18, the Kazakh financial regulator intervened again spending $270 million and $67 million respectively. Finally, on September 21, the intervention of the National Bank amounted to $213 million. In total, the National Bank spent $694 million in less than a week's time to regulate the national currency.

Deputy Chairman of the National Bank Kozhakhmentov refused to say whether the interventions were to continue. “I cannot tell you that. We are supporting the national currency now. It all depends on the speculative expectations and the climate. When the currency rate reached 300 tenger per $1, we intervened. Now the exchange rate is at 260 tenge per $1. (…) What is wasting money? The foreign currency is sold, tenge is bought in turn. It all depends on the situation on the market. We have prices for oil and other external factors to consider. Devaluations hit all countries at some point, even the developed countries,” the Deputy Chairman said. 

Certainly, the Deputy Chairman did not describe the $694 million interventions as a waste of funds. Whereas Kazakh economist Khudaibergenov said those interventions did little to stabilize the national currency.

Kazakhstanis are concerned about the fluctuations of the tenge. Earlier, Kazakh Minister of Finance Bakhyt Sultanov said that Kazakhstanis were not supposed to be care very much about the cost of dollars. He recognized that an adaptation period was needed for the citizens get used to the new principles introduced by the National Bank, but insisted that the purchasing power of Kazakhstanis was not threatened by the depreciation of tenge.

Kozhakhmentov, too, asked rhetorically why Kazakhstanis were so concerned with US dollars. “When we see speculations, we meet with banks and discuss the situation on the market. (…) Why are people concerned with the exchange rate so much? (…) We made some adjustments, in particular we have done that to support our local producers. (…) Now they are starting to sell their goods in Kazakhstan. Previously, it was difficult for them. (…) With the changes in the exchange rate they (local producers) are able to sell here and become more competitive,” Kozhakhmetov concluded.

Reporting by Assemgul Khassenova, writing by Gyuzel Kamalova, editing by Tatyana Kuzmina