BAKU, Azerbaijan, Nov. 5
Trend:
The current weakening of the tenge, which have been observed in Kazakhstan since the end of October this year, is primarily due to a significant correction in the oil market, Trend reports with reference to the National Bank of Kazakhstan.
According to the bank, since October 26, the oil price, having reached its peak levels in 2018 ($86 per barrel), interrupted the upward trend and began to decline. In less than two weeks, the price dropped to $81, or 5.8 percent. During the same period, the national currency weakened from 425.07 to 429.74 tenge ($0.99 - $1) per US dollar, or by 1.1 percent.
The bank said that despite the fact that OPEC+, following the meeting on November 4, retained its previous agreements on a monthly increase in oil production by 400,000 barrels per day, oil quotes are under pressure in connection with the appeal of the US President to the OPEC member countries to increase oil production.
In the longer term, despite a significant recovery in the oil price since the beginning of the year, there is no appreciation of the tenge. Undoubtedly, the oil price remains one of the main fundamental factors for the tenge exchange rate, because it is the oil price that directly affects the supply of foreign currency in the domestic market. However, the current account of the balance of payments, which reflects the fundamental factors influencing the exchange rate, remains in deficit, one of the reasons for which is the growth of imports of consumer goods.
It also noted that along with the growth of foreign currency export earnings, there is an equivalent appetite for foreign currency, due to the recovery of economic activity, the factor of deferred demand after COVID-19 quarantine restrictions, fiscal stimulus and the use of pension contributions. Thus, the factors of demand in the domestic foreign exchange market offset the growth of foreign exchange earnings in the country due to the rise in oil prices.
The bank says that another important factor negatively affecting the tenge exchange rate is the negative risk sentiment of investors towards emerging markets. Since the beginning of the year, the index of currencies of developing countries against the US dollar has weakened by 5.5 percent, which is primarily associated with the trend of strengthening the US dollar in response to the beginning of the curtailment of the US Federal Reserve System (FRS) quantitative easing program.
The bank noted that under the current free floating regime, market participants independently form the exchange rate of the national currency. Therefore, despite the fact that the dynamics of the tenge does not sufficiently translate the growth of oil prices, the free formation of the tenge exchange rate ensures the market value and balance of the market, avoiding the accumulation of imbalances.