Nurzhan Tursunkhanov cited the instability of the oil market and the huge pressure on the ruble as the cause
The Director of the Currency Operations Department of the National Bank discussed events in the external and internal markets and their impact on the exchange rate of the tenge Nurzhan Tursunkhanov.
-Recently, we have seen the exchange rate of the domestic currency dropped. What does this have to do with dynamics?
-In the foreign exchange transactions conducted on April 7, the currency of the country was traded at 430.80-430.85 tenge per US dollar, which was 0.37% lower than yesterday’s average exchange rate. Between March 30 and April 7, the local currency exchange rate fell by 6.8 tenge, or 1.6%.
The devaluation of Kazakhstan’s currency occurred under the background of the combined effects of external and internal factors, and the main factors are still the dynamics of oil prices and the Russian ruble.
Since the beginning of last week, Brent crude oil prices have fallen 4.1%. The risk of imbalance in the oil market is due to the possibility of oversupply being too high when some European countries have tightened quarantine restrictions. In Germany, Austria and France, the epidemic situation is getting worse and the number of hospitalizations is increasing rapidly.
After the OPEC+ decision after the April 1 meeting, oil volatility increased, and the alliance member states decided to increase production quotas by 1.15 million barrels per day in the next three months. In addition, Saudi Arabia refuses to voluntarily reduce production by 1 million barrels per day. The potential lifting of sanctions on Iran, the subsequent increase in market supply and the increase in the number of drilling rigs in the US shale industry also put pressure on oil prices.
Another strong pressure is that in the context of increasing geopolitical and sanctions risks and foreign investors fleeing ruble bonds, the exchange rate of the Russian ruble, its main trading partner, has fallen sharply. The ruble represents the worst dynamic among developing countries’ currencies, exceeding 78 rubles per dollar for the first time since November last year. In the past day, as the situation in southeastern Ukraine deteriorated, the ruble depreciated significantly. As a result, since the beginning of last week, the Russian ruble has depreciated by nearly 3%.
Since August 2015, the share of non-residents in Russian government bonds has fallen below 20% for the first time. This is due to the threat of sanctions and foreign investors not participating in new bond issuance. At the same time, the RF Ministry of Finance increased the amount of foreign currency purchases to this year’s maximum within the framework of budget rules. During the period from April 7th to May 7th, it is planned to allocate 185.7 billion rubles within the framework of the budget for the purchase of foreign currency, equivalent to 2.4 billion U.S. dollars.
In general, the currencies of developing countries continue to be under pressure related to the increase in the yield of US government securities and the increase in uncertainty related to the worsening of the epidemic situation. In addition, expectations of increased inflation and specific shocks to individual developing countries have led to the end of the monetary policy relaxation cycle.
In addition to external factors, there are also internal factors that affect the exchange rate of tenge. The PMI index entered the positive zone, reaching 50.6 in March, surpassing the 50 threshold for the first time since the beginning of 2020. The resumption of business activities has promoted the growth of foreign exchange demand within the framework of business operations and investment activities.
In addition, since the beginning of April, Kazakhstan companies have begun to pay dividends, and the dividends are partly converted by shareholders, which has generated more demand in the foreign exchange market.
In the case of a floating exchange rate, as before, the national currency is mainly affected by basic factors.