He noted that positive exchange rate formation is mainly influenced by external factors, while the implementation of internal ones is suppressed. Thus, as of early 2021, there has been a fairly strong dynamics of prices for the main export raw materials (oil, copper, uranium). The tenge is also supported by partially suppressed business activity and the temporary absence of large capital investments in foreign currency. According to the economist, the current supply of currency is more or less consistent with the underlying basic demand at a given time.
Additional factors keeping the current exchange rate stable are as follows:
- The purchase of foreign currency exceeding the conditionally optimal value by economic agents in the 1st HY 2020;
- A relatively high rate of return in tenge stimulating savings in the national currency, as well as the inflow of non-residents into tenge assets.
“As a result, the exchange rate is on hold on 420 tenge level. In case of further growth in oil prices, a rather slow and uneven strengthening to 415-417 tenge can be expected in the short term. Approximately in the spring, it will be possible to predict consolidation at the level of 427-432 tenge (subject to oil prices in the range of $55-65) as a result of expansion of business activity, implementation of pro-inflationary factors and start of capital investments,” Turkin noted.
The economist, however, is alarmed by the monetization of the government debt through the issue and sale of government bonds to banks at the expense of the newly created tenge surplus. The funds withdrawn from the UAPF and used to improve housing conditions add to this pressure.
Turkin believes that the existence of such an amount of tenge not associated with the economic growth of the tradable sector and not tied to production assets/capacities, creates risks of excessive pressure on the tenge and demand for currency.
“The continuing expansion of the tenge mass does not allow a long-term strengthening above a certain level, even despite the rise in oil prices. If we remove administrative restrictions from the foreign exchange market, the active participation of the state and National Bank, then in the conditions of our structure and inefficiency of the foreign exchange market, we will get a rather strong speculative oligopoly. And the rate can take extreme values with it. It is the problems of monetary policy and, in particular, the unsecured direct expansion of the tenge mass that is the key aspect of the lack of stability of the exchange rate, as well as the trigger of significant depreciation in the event of any uncontrollable shocks,” he stressed.
The economist added that now the external background and actions of large participants in the foreign exchange market cover the tenge overheating and other imbalances growth suppressing the mechanism of automatic stabilization of trade balance and money balance adjustment in the economy.
“Thus, sooner or later, an excessively compressed spring will have to fire or it should be smoothly released,” summed up Turkin.
On February 9, USD trades at the Kazakhstan Stock Exchange closed at the mark of 417.8 tenge. The national currency has strengthened by 1.5% since the month beginning.
Source: https://lsm.kz/fridom-itogi-kvartala
Photos are from open sources.
