Central bank intervenes to stem sharp currency appreciation

business and economy

Central bank intervenes to stem sharp currency appreciation

By SRI ⋅ February 12, 2010 ⋅

(SRI) - The National Bank of Kazakhstan bought over $2.4 billion in January and early February as it sought to stem the appreciation of thetenge, central bank chairman Grigoriy Marchenko said on Tuesday.

The tenge had devalued by 18 percent last February but has been strengthening since November, as oil prices rebounded and Kazakhstan’s economic performance in 2009 was better than expected.

Kazakhstan widened the tenge trading band on February 5 but Marchenko warned that the central bank would prevent any large fluctuations.

“To stop the market from moving too much in one direction or the other, we, as the central bank, must interfere,” Marchenko said.

At the same time, the central banker said that the bank would not “micromanage” the rate and saw no need to interfere when the dollar/tenge rate moves by 0.2-0.3 tenge per trading session. Analysts predict that the tenge could strengthen to 135-140 per dollar by the end of 2009 from the current rate of 148.01.

The tenge has historically shown strong correlation with the price of oil, Kazakhstan’s main export.

“If oil prices average $70 [per barrel] this year we think we will have a positive current account balance and we will buy foreign currency,” Marchenko told reporters. “And if the prices are even higher we will buy even more.”

Earlier this month, the central bank reported that Kazakhstan’s total foreign reserves rose 7.2 percent to $51.0 billion in January, reaching an all-time high.