Kazakhstan Allows Tenge to Weaken Amid Oil Price Crash
Kazakhstan Allows Tenge to Weaken Amid Oil Price Crash
(Bloomberg) -- Kazakhstan’s central bank said it will allow the currency of central Asia’s largest energy producer to depreciate after an emergency interest rate hike failed to stem a plunge to a record low.
Worsening global economic conditions are a “new reality,” the central bank said Monday in a statement on its website. “From now on, taking into account new fundamental realities, the National Bank intends to help create a balanced exchange rate.”
The tenge dropped more than any other currency in the world on Monday, weakening 6.7% to 434.9 versus the dollar.
Kazakhstan is trying to limit the fallout from a slump in oil prices and a global sell-off that has pummeled emerging markets. The central bank tried selling dollars to support the tenge last week but failed to avert a drop of about 6%.
Although only nine cases of coronavirus have so far been reported in Kazakhstan, a state of emergency was declared on Sunday until April 15. President Kassym-Jomart Tokayev received emergency powers on Monday allowing him to cap food prices and change regulations on financial markets, companies, international obligations and antitrust legislation, according to a website statement.
The measures will enable the president to “strengthen the power vertical” and make faster decisions, Tokayev said in televised comments.
The base rate will remain unchanged at 12% following a 2.75 percentage point hike last week, the central bank said. The bank cut its forecast for Brent crude to $35 a barrel from an earlier forecast of $60 a barrel and will monitor markets to help “smooth fluctuations” of the exchange rate, according to the statement.
Budget Cuts
The central Asian nation needs oil at $55 per barrel to balance its budget, more than $20 above current levels. The government plans to cut $1.25 billion of budget spending and may raise taxes for mining and extraction companies.
Kazakhstan, which was part of the OPEC+ deal that collapsed earlier this month, will keep oil production as previously planned.
The central bank’s rates corridor, formed from the overnight deposit and lending rates, was held at plus or minus one and half percentage point around the benchmark. The next rate decision is scheduled for April 27, according to the statement.
To contact the reporter on this story: Nariman Gizitdinov in Almaty at ngizitdinov@bloomberg.net
To contact the editors responsible for this story: Torrey Clark at tclark8@bloomberg.net, Natasha Doff, Alex Nicholson
©2020 Bloomberg L.P.