National Bank of Kazakhstan associates weakening of tenge with reduction in base rate and abolition of norm on sale of foreign currency by exporters

ASTANA. Sept 28 (Interfax) - The weakening of the Kazakh tenge is associated with a reduction in the base rate by the National Bank of Kazakhstan, the suspension of the rule on the mandatory sale of currency by quasi-state companies and the global strengthening of the dollar, Chairman of the National Bank of Kazakhstan Timur Suleimenov said.

"Global strengthening of the US dollar [against a basket of developed countries' currencies, the US dollar index grew by 2.5% in September], increased seasonal demand [for foreign currency] from importers, the decision to reduce the base rate and the government's suspension of the norm for the mandatory sale of foreign currency earnings by quasi-public sector entities together led to a short-term weakening of the tenge exchange rate," Suleimenov said at a meeting with investors, as quoted in a press release from the National Bank.

A stabilizing effect and support for the tenge will come from "the increased price of oil and the general state of the balance of payments," he said.

The National Bank of Kazakhstan does not rule out conducting currency interventions to smooth out sharp fluctuations in the exchange rate, Deputy Chairman of the National Bank Aliya Moldabekova said.

"(...) The National Bank reserves the right to conduct foreign exchange interventions to maintain liquidity in the foreign exchange market and smooth out sharp fluctuations in the exchange rate. This will support market exchange rate mechanisms without limiting the reasonable volatility of the tenge," Moldabekova said.

The official exchange rate of the Kazakh currency against the dollar has decreased 5.5% since the beginning of September to 482.77 tenge/$1.

At the end of August, the Government of Kazakhstan suspended the rule on the mandatory sale of 30% of foreign exchange earnings by quasi-public sector companies until January 1, 2025. This decision was made taking the balance of the foreign exchange market into account, and in order to expand the capabilities of companies to manage foreign exchange funds.

In August, the National Bank decided to lower the base rate to 16.5% from 16.75%. The rate remained at 16.75% for almost 9 months.