Kazakhstan expands Tenge to US Dollar exchange rate corridor

    By Dinara Urazova
    The central bank of Kazakhstan has expanded the Tenge to US Dollar pegged corridor from 6 tenge to 18 tenge, Tengrinews reports.
    National Bank Governor Kairat Kelimbetov made the announcement in Astana today.
    "The decision to change the corridor has been taken literally today. It will be effective as of tomorrow," Kelimbetov said. The Bank has expanded the pegged corridor from the exiting 185 tenge per dollar +/-3 tenge range to 185 tenge per dollar +3/-15 tenge.
    Kazakhstan keeps the exchange rate of its currency in managed float - in a pegged corridor.
    The Governor first mentioned the plan to enlarge the pegged corridor last week. He then explained that the expansion would serve to bring the tenge to dollar exchange rate to 181 or even 179 tenge per 1 US dollar, even went as far as assuming that the rate may eventually go down to 170 tenge per 1 US dollar.
    Devaluation fears in Kazakhstan have been high since the West started imposing sanctions on Russia for its involvement in the conflict in Ukraine and the pressure on the Russian currency exchange rate intensified.
    Kazakhstan is closely linked with Russia, because of their huge common border and vast trade relations. Kazakhstan-Russia border is over 7.5 thousand kilometres long, and their economies stand so tightly together that Russia accounts for 36% of Kazakhstan’s imports and 7% of its exports. So everything that goes on in Russia sends a wave to Kazakhstan.
    Besides, Kazakhstani residents remember too well the nearly 20% devaluation of February 2014. So every time there is a cause for uncertainty the devaluation fears resurface.
    Throughout the year Kazakhstani officials have repeatedly made statements explaining that Kazakhstan had enough fedex reserves to keep the Tenge exchange rate stable, and promising that no new devaluations were forthcoming. But in spite of their efforts, many remained unconvinced.
    On several occasions panic-driven queues gathered at exchange bureaus throughout the country causing cash bottlenecks and fuelling the speculations even further. Kazakhstanis now tend to keep their savings in dollars or euro rather than in Kazakhstan's national currency, the tenge, because of lack of trust to the latter.
    An especially large spike of distrust came in the beginning of July when the West unveiled its first sanctions against Russia.
    On July 1 then-minister of Economy and Budget Planning of Kazakhstan Yerbolat Dossayev who was later appointed Minister of National Economy of Kazakhstan had a press-conference to refute devaluation speculations.
    Minister Dossayev was asked by a journalist whether the Western sanctions against Russia and the Chinese-Russian agreement to depart from US dollar and start using Russian rouble and Chinese yuan in their mutual settlements made a new devaluation in Kazakhstan more likely than ever.