National Bank reveals drivers of tenge exchange rate strengthening

According to Aliya Moldabekova, deputy head of the National Bank of Kazakhstan, in February the country’s national currency tenge demonstrated confident growth. As the official said in a interview with the Kapital edition, non-residents’ appetite for state bonds and selling out of quasi-state companies were key drivers of the exchange rate strengthening.

In February, the regulator reported a 3.2% increase in the tenge exchange rate. Despite rumors, the reasons behind this strengthening are quite simple, said Moldabekova. For instance, February has been a popular season for large quarterly tax payments since 2016, when the tenge exchange rate has become free floating. The only exceptions were caused by the COVID-19 pandemic in 2020 and the Russian invasion of Ukraine in February 2022.

«Second, there were many positive developments in February. Apart from the big quarter tax week, we saw a huge demand for Kazakhstan’s government bonds from non-residents last month,» the official noted.

In addition, the government sold a set of quasi-companies in February and earned $295 million. Moreover, in order to support the currency market and put more money into the state budget, the government sold about $590 million worth of the National Fund’s assets. As a result, the budget received roughly $619 million.

«The trade volume was less than $30 million per day on average. One of the biggest buyers was the pension fund that bought $226 million in order to support pension assets nominated in foreign currency,» Moldabekova said.

Another factor that drives the tenge strengthening in March is a plan of foreign currency interventions that was announced beforehand. The National Fund is expected to sell about $750-850 million. Once these funds reach the budget in the form of the tenge, they will be poured into the economy and will finance growing imports.

In February, the National Fund’s foreign currency assets declined by $300 million, reaching $57.4 billion. The fund also failed to gain profit from its investments and reported a negative $1.1 billion in investment revenues. In contrast, the fund reported $1.8 billion in gains in January 2023. According to the National Bank, this decline followed a plunge in risk appetite that affected stocks and bonds and even sent gold prices into negative territory. At the end of February, the National Fund reported a 3.06% earning capacity on average.

«The negative reassessment of the National Fund’s assets was offset with big payment receipts. For example, the fund received $1.4 billion in February,» Moldabekova said.

In January, the tenge exchange rate was 465.39 tenge per one U.S. dollar. Since then, the tenge has been strengthening. So far, its exchange rate is 441.16 tenge per dollar.