Kazakhstan's central postponed today's scheduled monetary policy meeting following a decision to minimize its role in the foreign exchange market where the tenge has plunged since mid-August.
The decision comes only days after the country's president, Nursultan Nazarbayev, on Monday replaced Kairat Kelimbetov as central bank governor with Daniyar Akishev, former deputy governor, saying trust in the tenge and the central bank was low and this could not be allowed.
On Aug. 20 the National Bank of Kazakhstan let the tenge float as part of a shift to an inflation targeting policy regime with the result that the tenge immediately dropped by over 25 percent against the U.S. dollar and has continued to remain under pressure.
While the shift to inflation targeting was long-planned, the decision came the week after China's central bank devalued the yuan by letting more of its value be determined by market forces.
In response to the tenge's fall, the central bank said that in September and October it had "departed" from its decision to shift to a free float and sold currency worth over US$5 billion at the expense of the National Fund and the central bank's gold and foreign exchange.
The central bank's share of the foreign exchange market even reached 60 percent, it said.
On Oct. 4 the central bank raised its newly-introduced base rate by 400 basis points to 16.0 percent in a move to curb inflation from the depreciating tenge.
Kazakhstan's inflation rate jumped to 9.4 percent in October from 4.4 percent in September, above the bank's target of 6.0 to 8.0 percent, and economists had expected the central bank to raise its rate further today to support the tenge and push down inflation.
The next meeting of the central bank to set monetary policy will be announced later.
Nevertheless, the tenge continued to drop and was trading around 313 to the dollar on Wednesday.
But as of Thursday Nov. 5, the central bank decided to "minimize its participation" in the foreign exchange market to preserve foreign exchange, a decision it said was consistent with a free float.
On Thursday the tenge again fell, with the central bank saying the nominal value had changed by 5.0 percent during the day.
"This change does not pose a threat to financial stability and does not contradict with the purpose of the National Bank of achieving price stability, it said, adding that it reserved the right to smooth out large fluctuations that do not reflect supply and demand.
On Thursday the tenge ended the day at 326 to the dollar but fell further today to around 332, a fall of 33.5 percent since the beginning of the year and 37 percent since it let the tenge float in August.
"Further dynamics of the exchange rate of the tenge will be formed under the influence of factors determined mainly by the dynamics of prices on global financial and commodity markets," the bank said.
"During September and October 2015 the National Bank departed from the announced on August
20, 2015 approach on shift to a free floating exchange rate of the tenge, and started selling currency in the
foreign exchange market. Share of the National Bank in the foreign exchange market reached 60%. During
this period over 5 billion USD has been sold at the expense of the National Fund and gold and foreign
exchange assets of the National Bank.
In order to preserve its foreign exchange assets of the National Bank and the National Fund, the
National Bank decided to minimize its participation in the foreign exchange market since November 5,
This is consistent with policy of the National Bank on a free float and transition to inflation targeting
On November 5, 2015 the nominal change in the exchange rate of the tenge against the US dollar
amounted to 5% of the value of the previous day. This change does not pose a threat to financial stability
and does not contradict with the purpose of the National Bank of achieving the price stability.
National Bank reserves the right to smooth large fluctuations that do not reflect supply and demand
balance as well as fundamental factors.
Further dynamics of the exchange rate of the tenge will be formed under the influence of factors
determined mainly by the dynamics of prices on global financial and commodity markets.
The monetary policy meeting of the National Bank scheduled for 6 November 2015 has been
postponed and the date will be announced later. "