Economist Comments on Exchange Rate

On Facebook, economist Almas Chukin commented on the situation with record dollar sales and purchases yesterday and today, Orda.kz reports.   

The economist noted, "In the last 36 hours, there was one currency seller in the country with a name beginning with H and B and many buyers.” 

Half a billion dollars were thrown onto the market yesterday and 700 million today. In the end, this 'fire hose' doused the panic, and the rate dropped from 520 to 515. And the market recovered: those who managed to sell the dollar at 520 returned to buy it back at 515, Almas Chukin said. 

The economist says the last time there was “panic” of this scale was in the spring of 2022, after the start of Russia’s invasion of Ukraine.

The events in the Russian Federation are truly catastrophic and to some extent triggered panic in our market as well. But there would not have been such sales volumes if there had not been a bunch of tenge behind this panic. And there are beneficiaries of this story. For those who import from the Russian Federation, a good opportunity has arisen to buy rubles cheaper and benefit. The population that does not have access to the exchange and runs around exchange offices does not make a difference and harms only themselves. 

According to the economist, all budget expenditures powerfully boost imports, hence the demand for dollars.

Trillions of tenge have returned to the market and are being converted into dollars and rubles.

This may not last long, though.   

State money will be distributed by the end of the year and will return to the market somewhere before February. And then again, while new tenders are held, while projects are made, the flywheel of state spending will spin at full speed by the middle of the year. So, in theory, the current aggravation should calm down in the coming weeks. The question is to what level of stability will the rate roll back, said Almas Chukin. 

The economist calls for revising forecasts because the budget for 2025 was planned based on 470 tenge per dollar.

The tenge is largely overvalued. However, the growth of foreign investment has supported the national currency.  

Almas Chukin concluded that there is no need for concern. Our robust banking system with good reserves solidifies Kazakhstan's financial system. But the population will feel the backlash.

The fall of the tenge automatically causes an increase in import prices. Our approximate coefficient is 0.3, that is, a 10% increase in the tenge rate transmits a 3% increase in import prices. The growth of inflation causes an increase in interest rates on loans. More expensive loans slow down economic growth and make goods more expensive. It's a vicious circle.

The economist concluded that the ruble collapse is a situation that cannot be underestimated. Gazprombank was Russia's main channel for receiving revenue for oil and gas, but it is now subject to sanctions. 

It is unclear how settlements can be conducted now. 

Original Author: Oksana Matvienko