Under Pressure: Analysis of Kazakhstan's Currency Market in November 2024, DKnews.kz reports.
In November 2024, the Kazakhstani tenge faced significant pressure, weakening by 5% to reach 512.52 tenge per US dollar. This decline coincided with a reduction in the average daily trading volume on the Kazakhstan Stock Exchange (KASE) from $278 million to $262 million and a total trading volume of $5.5 billion. Experts attribute the currency's dynamics to a combination of domestic and external factors, including increased demand for foreign currency, new regulatory measures, and global economic conditions.
Key Drivers of Tenge Dynamics
1. Foreign Currency Sales from the National Fund
The National Fund sold $1.26 billion of foreign currency in November, accounting for 23% of total trading volumes on KASE. Daily sales did not exceed $60 million, reflecting the National Bank's efforts to minimize market impact. These sales were aimed at supporting transfers to the republican budget and maintaining fiscal stability.
For December, the planned volume of foreign currency sales is between $800 million and $900 million, signaling stable budgetary needs. The National Bank adheres to the principle of market neutrality in its operations, avoiding undue pressure on the exchange rate.
2. New Regulation for the Quasi-State Sector
Starting November 19, 2024, the government reinstated the requirement for quasi-state entities to sell 50% of their foreign currency earnings. This measure is aimed at increasing the supply of foreign currency in the domestic market. Companies execute these transactions independently through second-tier banks, reducing administrative pressure and promoting a more natural trading process.
3. Completion of Kazatomprom Transactions
The National Bank concluded its mirror operations related to the purchase of Kazatomprom shares for the National Fund. In November, $133.8 million was sold, marking the completion of these operations. This step served as an additional source of foreign currency supply in the market, supporting the tenge.
4. Currency Interventions by the National Bank
Amid growing demand for foreign currency and limited supply, the National Bank conducted interventions totaling $1.047 billion between November 15 and 28. These measures were aimed at stabilizing the tenge and preventing excessive volatility in the market.
Fundamental Factors Pressuring the Tenge
1. Deterioration of External Conditions
Globally, financial markets are experiencing increased turbulence due to shifts in monetary policies by major central banks, rising geopolitical tensions, and declining prices for Kazakhstan's key export commodities. These factors limit foreign currency inflows into the country.
2. Increased Domestic Demand for Currency
Demand for foreign currency from economic agents has risen, partly due to seasonal payment obligations and the need to meet external commitments. Limited supply has further exacerbated imbalances, increasing pressure on the tenge.
3. Investment Policy Adjustments of the Unified Pension Fund
In November, the National Bank refrained from purchasing US dollars for the portfolio of the Unified Accumulative Pension Fund (UAPF), and no such operations are planned for December. This decision aligns with the need to optimize the management of foreign currency assets amid heightened volatility.
What to Expect in December
The tenge's dynamics in the near term will depend on several factors:
- Tax Payments: December's tax inflows may temporarily increase demand for the tenge, potentially strengthening its exchange rate.
- Global Markets: Developments in global markets, particularly fluctuations in oil and metal prices, will remain critical drivers for the national currency.
- Geopolitical Environment: Any changes on the international stage could add further pressure on the tenge.
The National Bank remains committed to a flexible exchange rate regime, which prevents imbalances from accumulating and ensures the preservation of gold and foreign currency reserves. Regular disclosure of market operations will enhance transparency and foster trust among market participants.
Analysis and Conclusions
The tenge's weakening in November 2024 reflects the combined impact of internal and external factors. Despite significant pressure on the currency market, measures taken by the National Bank, including interventions, foreign currency sales from the National Fund, and the introduction of new regulatory norms, helped prevent deeper fluctuations.
Amid ongoing instability, Kazakhstan must continue efforts to diversify its economy, reduce dependence on external factors, and strengthen internal reserves. A balanced approach will be key to minimizing long-term risks and ensuring the stability of the national currency.
