Prior to the devaluation, exchange rate was
Despite announcement of NBK, many of Kazakh banks are selling USD for over
At the same time, the government urged to take measures to stop a sharp rise of prices, especially for first-need products (similar actions were taken individually by regional governors). The government also declared that there is no need in indexation of pensions as they were already raised by 9% since
Most of analysts were surprised by the size of the move, which was far larger than the RUB 5% decline this year. The move is seen as a desire to put a floor under the currency of
The NBK reasoned that decision was prompted by following factors:
• Volatility on international markets caused by U.S. federal Reserve gradual withdrawal of its quantitative easing policy. The U.S. policy leads to a gradual retreat of currencies from emerging markets, among which is
• The uncertainty of the exchange rate of Russian RUB as
• Worsening balance of payments of the country (although it remained positive in 2013 according to preliminary data) due to rising imports, mainly of consumers goods.
The bank also wanted to cut potential for speculative and inflation expectations. The rumors about possible devaluation of KZT started in July last year. As a result, a high activity on exchange market was observed – the volume of transaction in exchange bureaus was much higher in H2 than in H1 and the volume of deposits in foreign currency expanded by 40% through 2013 while deposits in national currency remained roughly at the same level.
The decision will inevitably lead to higher inflationary pressure than expected. The NBK targets inflation in 6-8% this year but many analysts consider it extremely difficult to achieve. Last year
The other issue which is rather neglected by the government are social costs of the decision. The decision will add fuel to demands for wage increase and may increase risks of social protests in the country. Devaluation also undermines the society's trust into the financial system of the country and generally towards political system. There will be also additional pressure on borrowers who took credits in foreign currency which may result in further deterioration of Kazakh banks' loan portfolio.
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