Monday, February 1, 2016

Kazakhstan raises rate 100 bps to help bolster tenge

     Kazakhstan's central bank raised its base rate by a further 100 basis points to 17.0 percent as it continues to pursue a monetary policy aimed at stabilizing the financial sector, restoring confidence in the national currency and creating the conditions for a tenge yield curve.
    The National Bank of Kazakhstan, which let the tenge currency float in August last year as part of a shift to an inflation targeting regime, introduced a new base rate on Oct. 4. This rate was then immediately raised by 400 basis points to 16 percent to curb inflation from currency depreciation.
   Surrounding the base rate is a symmetrical rate corridor of plus/minus 2 percentage points,  with liquidity provided to banks at 19 percent and withdrawal at 15 percent.
   The decision by the central bank's technical committee comes after the central bank on Dec. 3, 2015, delayed its monetary policy meeting for a second time, saying the local money market was unable to set a adequate interest rate due to a risk of funds being used for foreign exchange and interest rate arbitrage. The meeting was originally scheduled for Nov. 6.
    The central bank said the next announcement of a base rate would come on March 14.
    The bank said that its work in recent months has been aimed at stabilizing the money market and its actions are aimed at strengthening confidence in the tenge, the banking system and changing the preference of investors in favor of tenge deposits.
     Kazakhstan is located east of the Caspian Sea, south of Russia and west of China. It is the largest oil producer among the former Soviet republics after Russia and has been hard hit by the fall in oil prices and the fall in Russia's ruble currency.
     In November last year Kazahkstan's president, Nursultan Nazarbayev, replaced the previous central bank governor with Daniyar Akishev and has announced sweeping plans to offer stakes in some of its largest state-owned enterprises, such as the national oil, railway and telecommunications companies, to investors in preparation for eventual stock market listings.
   Last year Akishev was quoted as saying the central bank aimed to limit inflation to a target of 6-8 percent and expected inflation to ease by the end of this year.
    Kazakhstan's inflation rate rose to 14.4 percent in January from a 2015-high of 13.6 percent in December last year while the tenge has firmed in the last week, quoted at 364.5 to the U.S. dollar today, up from 379.5 on Jan. 26,  but down 6.6 percent since the start of this year.
    Compared with its exchange rate prior to the free float on Aug. 20, 2015, the tenge is down almost 50 percent. In addition to be affected by the price of oil, the tenge also typically tracks the ruble.
    The central bank has on several occasions suspended provision of liquidity to deprive banks of funds it says are used to speculate against the tenge.


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