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EM currencies devaluation possible in 2014, Kazakhstan's central bank chief says

February 20, 2014, 18:45 UTC+3 20
January 11, the National Bank of Kazakhstan announced one-off tenge devaluation by 20%
1 pages in this article
Chief of the National Bank of Kazakhstan Kayrat Kelimbetov

Chief of the National Bank of Kazakhstan Kayrat Kelimbetov

© ITAR-TASS/Valery Sharifulin

ASTANA, February 20. /ITAR-TASS/ Emerging markets (EM) can face the need to devalue their national currencies this year, says chief of the National Bank of Kazakhstan Kayrat Kelimbetov.

“We are living in an interconnected world. I would not give forecasts for individual countries. However, I think this year we’ll witness many countries making similar decisions,” said Kelimbetov.

The tenge's devaluation was declared under the pressure of “global uncertainty and weakening of EM currencies”, he added.

“An even more important issue for us is the very pessimistic outlook for economic growth in the countries that are Kazakhstan’s trade partners”, namely the European Union, Russia and China, said Kelimbetov.

January 11, the National Bank of Kazakhstan announced one-off tenge devaluation by 20%. The official exchange rate was set at 155.5 tenges per dollar.

“I do not think that it is appropriate to say where a more right or less right decision has been made. Every country has its own model,” Kelimbetov said.

 

Kazakhstan’s soft devaluation increases pressure on currency rate

Kazakhstan’s soft devaluation raises pressure on the currency rate through physiological expectations of the population, Kairat Kelimbetov noted.

“Many analysts say such an approach targeted at adjusting the population to a new exchange rate, in fact, creates more physiological expectations from devaluation,” he said in an interview with Itar-Tass. “As only very experienced players can adequately react in such conditions, a majority of inexperienced citizens most often cannot realize what a currency rate will be in the future. As a result, such a strong pressure on the exchange rate causes deeper devaluation.”

The Russian economy with its international reserves of 0.5 trillion had a strong safety margin and could allow itself significant fluctuations of its ruble currency, Kelimbetov said.

In the conditions of soft devaluation the currency market participants, including individuals, began buying foreign currency “just in case” spurring the exchange rate.

“We remembered that in 2009 it had reached 40-50% in Russia, while in Kazakhstan it was enough to carry out a one-time devaluation of 26%. I think the model we have chosen is more adequate and effective for Kazakhstan,” he said.

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