Devaluation necessary for restoration of Kazakh currency market: Bolat Zhamishev08 september 2015, 15:38
Chairman of the Development Bank of Kazakhstan Bolat Zhamishev has spoken to Russia 24 about the depreciation of the national currency - the Kazakh tenge - and outlook of the economy of Kazakhstan.
According to Zhamishev, depreciation of the national currency was a widely expected move in Kazakhstan.
"Expectations of depreciation in the country were very high. After the depreciation in Russia and in a number of other countries, it was natural for everyone to anticipate devaluation of the tenge. The expectations certainly affected the investment activity in the market, as the tenge market shrunk drastically. More and more of the banks; liabilities were converted into foreign currencies. It led to a general deterioration of the bank's liability portfolio structure and, consequently, undermined the banks' ability to provide loans (in tenge). That is why high depreciation expectations were bound to conclude with a depreciation, " Zhamishev said.
Moreover, Zhamishev believes currency depreciation was needed in Kazakhstan, because it was crucial to restoration of the national currency market. "It was needed, because without a depreciation it would be impossible to remove depreciation expectations. It cannot happen out of the blue. Restoration of trust of citizens to the national currency requires additional efforts from the National Bank and the government. Only as the trust towards the national currency and its predictability strengthens - be it amid the free floating regime or any other - only then may we develop and open our national currency market. Without the trust, the banking system cannot operate in full force and perform its functions of the financial intermediary as there are too many imbalances," the Chairman of the Development Bank said.
Despite the devaluation of the national currency, Zhamishev noted an increasing number of foreign investment projects in Kazakhstan. He explained that Kazakhstan had become attractive for foreign investments thanks to the favorable taxation regime and other conditions. According to Zhamishev, most of the foreign investments go into the oil and gas sector and ore mining. Investments in the financial sector have significantly decreased after the burst of the financial bubble, the head of the Kazakh Development Bank said.
Currently, the Development Bank is working on one project with Russia in metallurgy. In addition, Kazakhstan is preparing a number of investment projects with China.
Kazakhstan opted for the floating exchange rate of the tenge on August 20 instead of the regulated currency band. The new policy resulted in a spike depreciation of the national currency by 36%.
By Gyuzel Kamalova, editing by Tatyana Kuzmina