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Experts predict tenge devaluation by late 2014

20 October 2014 12:44 (UTC+04:00)
Experts predict tenge devaluation by late 2014

By Aynur Jafarova

Experts in Kazakhstan's Halyk Finance Investment Bank predict that the national currency tenge would face devaluation by late 2014.

"We are changing our forecast on the exchange rate as of late 2014 expecting a devaluation from USD / KZT = 183.2 to USD / KZT = 210," Trend Agency reported on October 17 with reference to the bank.

The conditions in the Kazakh monetary market have sharply deteriorated and such a situation occurs on the eve of the devaluation.

"All indices testify to demonetization, loss of market confidence in tenge and currency crisis deterioration," the bank said.

An average daily overnight repo rate reached 24.3 percent, but in some transactions - 40 percent. One-day currency swap market closed at 26.1 percent. The non-deliverable forward (NDF) exceeded 13 percent (compared to nine percent two days earlier), while weekly reached 23 percent. However, the tenge rate to the dollar increased up to 181.50, while a trading volume tripled compared to the trend, the bank's report said.

During the morning session on October 16 and October 17, a major participant sold nearly $620 million, despite the fact that the exchange rate ranged from 181.50-181.55 tenge per dollar. This major participant was the only seller. The total trading volume amounted to $632 million during the two sessions.

The exchange rate on October 17 was 181.52 USD/KZT.

"Deterioration of conditions in the money market shows that the majority of market participants have almost fully optimized liquidity in tenge and are now ready every day to keep the liquidity position at the level of 26 percent per annum in order to avoid currency risks," the report said.

Despite the growth of rates, the volume of currency swap market has increased by around 50 percent compared to the trend.

The forecasts of bank analysts about the possible future devaluation of the exchange rate of tenge are based on both fundamental reasons and the low credibility of the exchange rate policy.

"Fundamentally, the reserve on the February devaluation "melted" after the wage increase in spring and decrease of the ruble in summer and fall, and after the decrease of oil prices tenge became overrated," the bank noted.

However, the pressure on the rate was sensible even when tenge was still underestimated, namely in spring and summer.

"Unwillingness to actively create rates on the money market at levels that make speculative positions unprofitable is the direct cause of low confidence for the exchange rate policy," the Halyk Finance said.

In February, after adjusting the exchange rate of the national currency by the National Bank of Kazakhstan, the dollar exchange rate reached 185 tenge ($1=181.843 tenge). In July, Head of the National Bank Kairat Kelimbetov denied rumors of a second wave of devaluation.

Earlier commenting on the possibility of devaluation of tenge, Kazakhstan's National Economy Minister Erbolat Dossayev said it is not worth waiting for a regular devaluation in the country.

"Today we hold preventive measures with the government in order to understand the direction in which the Russian ruble will be weakened or consolidated," he said. "Devaluation is not likely to occur."

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