National Bank of Kazakhstan

05/19/2022 | Press release | Distributed by Public on 05/19/2022 00:12

The National Bank will not limit reasonable tenge volatility

Volatility in foreign markets persists: the US Federal Reserve is actively raising the rate, geopolitical risks are putting pressure on the outlook for the global economy. Despite this, the exchange rate of the national currency significantly recovered its position in April. This was stated by Deputy Chairman of the National Bank of Kazakhstan Aliya Moldabekova, Kazpravda.kz reports .

In April, despite the ongoing uncertainty and volatility in the global financial markets, the tenge appreciated to 445.62 tenge per dollar, or by 4.6%.

During April, there was a noticeable decrease in demand for foreign currency. The average daily trading volume on the Kazakhstan Stock Exchange decreased from $179 million to $92 million, with a total trading volume of $1.9 billion.

"The decrease in demand for foreign currency is primarily due to a decrease in imports, including Russian ones, as a result of a break in supply chains and possible interruptions in supplies. In addition, given the current situation, in the context of the application of restrictive measures by the Russian Federation on the export of certain types of products, it is possible to reorient imports to other markets, which requires some time," Moldabekova said.

Also, the ongoing uncertainty, including in foreign markets, contributes to a decrease in the activity of market participants, she continued.

"In general, the market sentiment has changed, demand from individuals has stabilized, which also has a positive impact on the tenge exchange rate. We note that measures to protect tenge assets and an increase in the National Bank's rate to 14% contribute to ensuring the stability of the financial market and maintaining the attractiveness of tenge deposits. Against the background of the geopolitical situation and exchange rate volatility, the level of dollarization in the banking system in February 2022 increased to 38.4%, mainly due to the revaluation of the exchange rate. However, in March 2022, dollarization decreased to 36.9%," said the Deputy Chairman of the National Bank.

Another factor strengthening the tenge is the recovery of the Russian ruble exchange rate as a result of the measures taken to control capital and the mandatory sale of foreign exchange earnings by exporters.

"Against the background of the stabilization of the situation in the domestic foreign exchange market during April, the National Bank did not carry out foreign exchange interventions. At the same time, we note that in case of short-term fluctuations in the exchange rate of the national currency, not supported by fundamental factors, the presence of the National Bank in the foreign exchange market can be both on the selling side and on the buying side. At the same time, the National Bank will not limit the reasonable volatility of the tenge," Moldabekova stressed.

Some support for the foreign exchange market of Kazakhstan was provided by the sale of foreign exchange earnings by the subjects of the quasi-public sector, which amounted to about 253 million US dollars. Sales of foreign currency to ensure transfers from the National Fund to the republican budget in April amounted to 168 million US dollars. The share of sales from the National Fund amounted to 8.7% of the total trading volume.

In early May, the tenge rate continued to strengthen to 432.79, thus, since the beginning of the year, the weakening of the national currency amounted to only 0.2%, the speaker concluded.

In an updated report on global economic growth, the IMF notes that the effects of the conflict in Ukraine will spread through commodity markets, trade and financial ties. The reduction in the supply of energy and metals from Russia, as well as wheat and corn from Russia and Ukraine, has already caused a sharp increase in these goods. Against this background, the updated inflation forecast was 5.7% in developed countries and 8.7% in developing countries, which is 1.8 and 2.8 percentage points higher. points above the January forecasts.

"The ongoing imbalance in global markets is also leading to a revision of oil forecasts by market participants. Thus, in the third quarter of this year, international analysts expect Brent quotations to rise to $130 per barrel, due to a larger-than-expected shortage of supply against the backdrop of a ban on Russian oil imports by the EU countries. The forecast for global oil demand was cut by one million barrels per day amid worsening economic growth forecasts, as well as escalating geopolitical tensions. The Brent price forecast for the second quarter of the year was kept at $114 per barrel.

Investment banks continue to constructively assess the outlook for the stock market and expect prices to recover before the end of the year in their base scenarios. Thus, the value of the median of the S&P 500 forecasts for the end of 2022 is 4875 points, which practically implies a return to the values ​​of the index at the beginning of the current year. At the same time, investment banks' forecast scenarios are based on the assumptions of a steady slowdown in inflation and the avoidance of a recession in the economy," Moldabekova said.

However, in view of current trends, some analysts note the end of the cycle and paradigm of markets characterized by low inflation, globalization and low volatility, which has been observed since the 1980s. In their opinion, financial markets are on the verge of a new cycle, in which the risk of inflation poses a greater threat than deflation. Therefore, investors should increase the diversification of assets, including by increasing the share of investments in real assets, summed up the Deputy Chairman of the National Bank.

Source: Kazpravda.kz