The Department of Research and Knowledge Management of Samruk-Kazyna Sovereign Wealth Fund of Kazakhstan forecasted stabilization of the national currency of the country in 2016, according to the department's report May 24.
"The average exchange rate of the USD-KZT is projected in the range of 355 for 2016", said the analytical report of the department.
Based on the current momentum observed on the USD-KZT, the tenge is expected to strengthen gradually moving forward, underpinned by several factors.
First, market players have pushed back the timing interest rate normalization to the second half of 2016, following the US Federal Reserve's dovish comments during March's Federal Open Market Committee (FOMC) meeting.
The Fed Chair cited slowing growth in China and the uncertain outlook for commodity prices as risks, stressing that it is appropriate to "proceed cautiously" on monetary policy. This message sends a strong indication to the market that another rate hike over near-term is highly unlikely, making emerging market assets attractive for now vs. dollar assets, according to the report.
Second, stabilization in oil prices has mitigated downward pressures on the tenge. Global oil prices registered the biggest gains in four months last week, encouraged by a slew of data releases. The US dollar weakness in recent months has also provided some support to the oil markets.
Third, NBK's new monetary policy tool - the National Bank of Kazakhstan set its first benchmark interest rate in September 2015 as the country introduced a new monetary policy tool to manage a free floating exchange rate regime, according to the report.
FX (foreign exchange) interventions also affect stabilization of the tenge rate, according to the report.
FX intervention (if any) by the National Bank of Kazakhstan is only intended to smooth over significant fluctuations in the tenge (in order to limit the effect of FX shocks on inflation and financial stability, as per the objectives of the new monetary policy tool).
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