Should Russian Ruble tumble, would Kazakh Tenge hold? -- opinions05 october 2011, 12:45
Neighboring Russia is teeming with discussions of a possibility of a sharp weakening of its national currency, the Russian ruble. Kazakhstan and Russia share a lengthy common border and have close economic ties so no sharp change in the large neighbor’s exchange rates goes unnoticed in Kazakhstan. If the rubble tumbles, how would this affect Kazakhstan national currency, the tenge? What measures could be taken by Kazakh monetary authorities in case of the ruble’s devaluation? How would the fall influence economic relations in the Customs Union countries?
KazTAG made a survey to find out opinions of prominent Kazakhstan economic and financial experts.
Rakhim Oshakbayev, Director General of Kazakhstan Economists Association:
There are no objective reasons for devaluation in Russia. There are also no prerequisites for weakening of tenge in Kazakhstan. But if Russians allow their national currency to fall, Kazakhstan will be forced to do the same with the tenge to save competitiveness of its commodities and services.
Gold and currency reserves can be a reason behind a devaluation threat. But currently Russia's reserves have practically reached their pre-crisis values, even though the capital outflow that caused the devaluation in the end of 2008 – beginning of 2009 has not been compensated by an inflow in the following years. The pressure potential on the Russian ruble exchange rate is somewhat “attenuated”.
Kazakhstan has reached even more impressive results in its gold and currency reserves: right now the reserves are 43 percent higher than their pre-crisis maximum. Besides, Kazakhstan did not experience a similarly severe capital outflow as Russia did in 2008-2009.
Nevertheless, expectations frequently play a more decisive role, than objective factors. Currently there are alarming expectations of a global recession and collapse of energy prices. In this situation major players are prone to taking their money out of ruble denominated assets and escalating demand for the dollar.
Russia has its own specifics related to the coming 2012 presidential election. This is another reason for uneasy expectations. In any case, should the recession strike the global economy, it will inevitably bring energy prices to collapse.
Considering that hydrocarbons are the main export focus of Russia and Kazakhstan, collapse of energy prices would threaten the countries with a deficiency of the balance of payments that would drain their gold and currency reserves.
We also have to consider the experience of the last crisis when Russian gold and currency reserves went 30 percent down within 3-4 months. If the external shock pressure had lasted longer then, the devaluation in Russia could have been much faster and much more significant.
Updated Russian budget for 2011 would break even at the oil price of $109 per barrel. This means that oil prices going down to $80 would pose a risk of a deficit in the Russian budget. This is yet another threat for the stability of the Russian ruble.
In case of a negative scenario and the actual devaluation of the Russian ruble, Kazakhstan will be forced to follow its Customs Union neighbor. The common customs space has further amplified the influence of exchange policies on the competitiveness of our commodities. Kazakhstan needs to support the established parity rate and compensate the exchange difference between tenge and ruble.
Should the ruble be devalued, the necessity to maintain competitiveness will put pressure on the Kazakhstan government forcing it to adequately devalue the tenge, regardless of the tenge's exchange rate against the dollar.
In case Kazakhstan decides to “hold the ground” and refuses to devalue the tenge, the weakening ruble would cause Russia production costs to lower, and the prime cost of our commodities will become too high and Kazakhstan will lose its competitiveness. As a result our country will get hit with two things: the economy will start debulking its own output, while a surge of a cheaper import will undermine the balance of payments.
For example, China keeps its yuan weak. This is one of the pillars of its economic policies. Weak national currency allows the country to keep its production costs low and use this to attract investors and boost entrepreneurship activities at its territory producing goods for export. Weak yuan is currently one of the main topics of economic negotiations in the big politics.
However, putting aside the threat of emergence of serious external shocks, Kazakhstan’s general macroeconomic performance imposes no threat to the tenge exchange rate.
Bisengali Tadjiyakov, Vice-Chairman of the National Bank:
Kazakhstan gold and currency reserves have exceeded $76 billion. According to the international standards, a country’s gold and currency reserves should equal to at least 3.5-months’ worth of its import. In case of Kazakhstan, its reserves have already exceeded 8-months’ worth of import. Besides, to prevent the tenge from strengthening we had to buy about 6 billion dollars within the first four months of this year.
Between January and August the tenge strengthened by 0.7 percent. No surge in the money supply that could pose a threat to the exchange rate has been registered in Kazakhstan either.
Our money stock grows proportionally to the GDP growth rate. In 2010 the nominal GDP growth made 28.3%, the money stock grew roughly 13.3%. In the first half of 2011 the nominal GDP grew 17-17.5% and the money stock grew 12.2%. Kazakhstan is maintaining a positive correlation. That is why no sharp depreciation to the tenge will take place; the National Bank has sufficient reserves to support the national currency’s exchange rate.
There is a possibility that the statements about the potential devaluation in Russia is a speculation. Someone could be purposefully magnifying the situation. In his recent speech Russia’s Vice Minister of Finance Sergey Storchak said that 29 Russian Rubles per one US Dollar is an optimal exchange rate for Russia. In the beginning of the year the exchange rate reached 32 RUR/USD, then it lowered to 31 RUR/USD. According to the Vice Finance Minister, the Rubble will stay in roughly the same corridor.
My opinion is that Russian Ruble’s exchange rate could change by 2-3%, but not more than that.
Kenzhegali Sagadiyev, Member of the Majilis (lower chamber of the Kazakh Parliament), Doctor of Economic Sciences:
“I don’t know what Russians think about it, but Kazakhstan has got a stable monetary system; the country’s reserves are sufficient. And I don’t expect any tenge exchange rate collisions to happen in our country in the nearest future.
The rumors of the devaluation of the Russian currency, it seems to me, are spread artificially without any firm ground behind them.
It is worth noting that his year budget of the Russian Federation has got a surplus. This country also has enough reserves, and I don’t expect them to take any such steps (devaluation).
Of course, Russia is our large trade partner and we have very close economic ties. Problems in the Russia’s economy could exert a certain influence on us, of course, but I don’t expect this to influence of monetary strategy or stability of the tenge. The government-run programs launched recently will also help the country withstand against the possible second wave of the crisis.
Indeed, the global economy is not feeling well at all now: the European Union has debt problems, the United State have a huge budget deficit. Naturally, this this have a long-term influence on the economics of the United States, European Union, Russia and out economy, too.
But Kazakhstan already has all the necessary mechanisms in place. We have substantial gold and currency reserves and the National Fund (oil wealth accumulation fund). Besides, we have launched a large-scale industrialization program. A lot of funds have been allocated to support small and medium-sized businesses. There is a strong employment program and a number of other documents. All this will allow us to intensely resist the threats coming from the global economy.