Kazakh Central Bank Devalues Tenge 18%, Ends Support

By Nariman Gizitdinov

Feb. 4 (Bloomberg) -- Kazakhstan’s central bank devalued the tenge by 18 percent, joining Russia, Ukraine and Belarus in abandoning attempts to prop up exchange rates as currency reserves dwindle.

Central Asia’s largest energy producer will keep its currency at about 150 tenge to the dollar from Feb. 4, the Almaty-based National Bank of the Republic of Kazakhstan said in a statement. It may fluctuate about 3 percent either side of that rate. The tenge fell 15 percent to 143.98 on the Kazakhstan stock exchange, from 122.32 per dollar yesterday.

Kazakhstan is devaluing its currency as local banks and companies struggle to refinance debt and a recession looms. The nation, holder of 3.2 percent of the world’s oil reserves according to BP Plc, is slowing after a decade-long boom during which the economy expanded an average of 10 percent a year. The government now predicts expansion of 1 percent this year.

“The story on why they are devaluing is very similar to Russia and in certain instances, it’s even more extreme,” said Bhanu Baweja, head of emerging-market currency at UBS AG in London. “The swing from a current account surplus to deficit is very extreme. There’s also a very real possibility of negative growth this year.”

The central bank’s decision comes a day after Goldman Sachs Group Inc. forecast a 19 percent devaluation. The currency may fall to about 175 by the end of March, analysts at Societe Generale SA said Feb. 2. Nomura Holdings Inc. said last month Kazakhstan should allow a 50 percent decline.

Rate Cut

The central bank is “walking away from supporting the tenge exchange rate in its previous corridor to save foreign currency reserves and support local producers’ competitiveness,” its statement said.

Kazakhstan depleted its foreign currency and gold reserves by 6 percent in January as it sold more dollars. The holdings slumped $1.6 billion in January from $19.4 billion in 2008, the central bank said in a separate statement today, citing preliminary data.

The central bank will cut the refinancing rate to 9.5 percent tomorrow and reduce its reserve requirement by 0.5 percentage point, Chairman Grigori Marchenko said at a press briefing.

“Kazakhstan most probably may not need to provide additional help to commercial banks with their payment of foreign debt after devaluation,” Marchenko said. “If the situation will become worse the state may step in to help banks,” he said, without elaborating.

Subprime Fallout

Kazakhstan devalued its currency by about a quarter over two days in April 1999 in response to Russia’s depreciation of its own currency a year earlier. The central bank resumed its management of the tenge in 2007, nine years after letting it trade freely, as the U.S. subprime-mortgage crisis starved Kazakh banks of credit and slowed the nation’s economy.

Countries around the region have been devaluing their currencies as the seizure in credit markets and prospect of a global recession starve emerging markets of foreign investment. Ukraine allowed the hryvnia to slide 47 percent to the dollar since August and Belarus devalued its ruble by 21 percent on Jan. 6 after pegging the currency to a basket made up of dollars, euros and Russian rubles on Jan. 2.

To contact the reporter on this story: Nariman Gizitdinov in Almaty, Kazakhstan, through the Moscow newsroom at ngizitdinov@bloomberg.net