Kazakh central bank to pounce on dollars as Tenge regains appeal

Bloomberg

Kazakhstan’s central bank is prepared to return to the currency market in force to mop up excess dollars after a month of doing “practically zero” as higher returns draw savers to tenge deposits, Governor Daniyar Akishev said.
“If there are significant inflows of foreign currency, we are ready to buy as before,” Akishev said in an interview on Friday in Almaty, Kazakhstan’s commercial capital.
Seasonal factors including summer travel boosted demand for foreign currency in June,
and “the National Bank’s participation wasn’t necessary,”
he said.
Policy makers are focused on purging the US$184 billion economy of excess reliance on dollars after the crash in oil prices forced the central bank to devalue the national currency twice in two years, prompting an exodus from tenge savings.
Akishev, 40, who previously served as an aide in the presidential administration and as a deputy governor at the central bank, had the task of restoring public confidence in the tenge after his appointment by Kazakh leader Nursultan Nazarbayev last November.
Free Float
After abandoning its currency peg and adopting a free-floating exchange in August, the central bank lifted its new benchmark interest rate as high as 17 percent this year to halt outflows. With the tenge rebounding, the central bank has been active in the currency market again. Net purchases of foreign exchange exceeded US$3 billion in February-May before slowing to near zero in June. The tenge has appreciated almost 14 percent since falling to a record in January, the second-best performer among its ex-Soviet peers after the Russian ruble. Even when the central bank was present in the currency market, it never accounted for more than 40 percent of trading volumes, according to Akishev.

Fewer Dollars
The share of foreign-currency deposits peaked in January, and has since been declining at the same pace, he said. The proportion has dropped by about 10 percentage points both for households and companies, reaching 60 percent of the total at end-May, according to Akishev.
“An acceptable level we’d like to reach this year is 50-50 on all deposits,” he said. “Trends have emerged, and I think they will continue.”
While the 50-50 threshold isn’t a target, it amounts to a level that will allow banks to unlock long-term funding in tenge and pave the way for a revival in lending, he said. Total loans are little changed since the start of the year at 12.4 trillion tenge ($36.7 billion).
“Some time is needed for lending to resume because the economy has to adapt to a new reality,” Akishev said.
Policy makers, who are reviewing borrowing costs on Monday, have cut rates only once this year even with the economy on track for its first annual contraction since 1998. Annual inflation surged to 17.3 percent last month, more than double the central bank’s target.
“The National Bank’s task is to ensure that inflation falls into a corridor of 6 percent to 8 percent in 2016,” Akishev said. “For us it’s a key question, which will also help increase trust in our policy.”