Baku, Azerbaijan, Feb.12
By Elena Kosolapova - Trend:
The National Bank of Kazakhstan has chosen a good time for devaluation of the national currency, according to Chief Economist at the Russian Alfa-Bank Natalia Orlova.
"Currently there is certain calm in the markets. This is a sufficiently successful time to save the reserves and to bring the market level to a new diapason. Therefore, the Central Bank of Kazakhstan took advantage of this lull to bring the exchange rate to a new level, " Orlova told Trend on Feb.11.
It is very difficult to choose the right time for the devaluation of the tenge whose exchange rate is quite firmly fixed by the country's Central Bank, as the fixed currency may be under very high pressure when there is a capital movement, according to the expert.
Orlova believes that currently, the devaluation of tenge is necessary.
"This measure is related to the fact that domestic factors which earlier allowed the market to strongly uphold tenge have been exhausted and the international situation will deteriorate. I refer to capital outflows and pressure on other currencies," the expert said.
The expert added that Kazakhstan's currency reserves decreased and there was a capital account deficit in 2013. Therefore, under these conditions it is not real to rely on the premise that the currency can be held fixed if it is under pressure.
Additionally, the decision of devaluation takes into account the global situation, particularly the fact that a change of U.S. policy leads to a sharp outflow of capital from emerging markets, according to Orlova. The Russian rouble was under pressure in January and an unstable situation is being observed in Ukraine.
"The idea of shifting the currency level is that now the population should switch from import consumption to domestic production. This would mean the trade balance and partly the balance of the capital account will improve. Generally, the relationship between currency devaluation and a trade balance goes through the reduced purchasing power of the population and companies," Orlova said.
As a result of devaluation of tenge in Kazakhstan, the inflation rate will unequivocally accelerate, according to the expert.
"A certain decrease in the purchasing power will be observed in next 12 to 18 months and the import volume will decrease," the expert said.
The Kazakh government has few opportunities for holding prices fixed under the conditions of devaluation, according to Orlova.
"Under such conditions, when banks have problems, the Central Bank can move to 'pumping' their liquidity. But such a measure additionally spurs inflation," the expert said.
The primary task of the Kazakh government at the moment should be to keep the currency at the current level and at the same time without spending more on maintaining the banking system, according to the expert.
Additionally, there is a possibility of imposing administrative restrictions such as the freezing of tariffs. However, the expert believes that under the conditions of Kazakhstan, such a measure would have a great impact.
The National Bank of Kazakhstan adopted a decision on Feb.11 to refuse to maintain the exchange rate of the national currency, the tenge at the same level, to reduce the volume of currency interventions and interference in the process of the formation of the tenge's exchange rate.
'The national bank expects that the new exchange rate will be at around 185 tenge per dollar', the statement of the National Bank said.
The official exchange rate on Feb.11 is 155.5 KZT/USD.
Translated by L.Z.
Edited by S.M.