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EMEA Weekly: What Is NBK's Next Move?

By Danske MarketsMarket OverviewFeb 14, 2014 06:53AM ET's-next-move-202645
EMEA Weekly: What Is NBK's Next Move?
By Danske Markets   |  Feb 14, 2014 06:53AM ET
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The latest 'news flash' in the still-ongoing emerging market turmoil was the decision of the National Bank of Kazakhstan (NBK) to devalue the Kazakhstani tenge by around 19% on Tuesday. In line with other emerging market currencies, the tenge has been under pressure for some time. The central bank has been intervening and the foreign currency reserve has been in steady decline for some time.

Overall, we believe that the NBK made the right decision. With risk remaining on the downside in oil and gas prices - Kazakhstan's main exports - and emerging market outflows continuing, it is likely that the tenge could come under more pressure in the future, particularly taking into account that the currency had become significantly overvalued versus peers such as the rouble. Therefore, the NBK would have been forced to continue its policy of FX intervention to prop up the tenge. This does not come for free.

Now the big question is what the NBK will do going forward. We believe that the right thing to do would be to move closer to a more freely floating tenge or at least a currency regime that is more flexible than has been the case in Kazakhstan. On the other hand, we are not sure that Kazakh policy makers are ready to take that step yet. A lot is dependent on overall EM sentiment and the development in commodity prices going forward. Events could force the NBK towards a truly freely floating tenge, but if capital outflows die down, we believe the NBK will try to keep the tenge fairly fixed around current levels against the dollar.

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EMEA Weekly: What Is NBK's Next Move?

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EMEA Weekly: What Is NBK's Next Move?

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