Kazakhstan: Kazakh tenge collapses amid the fallout of war in Ukraine, despite central bank support
Russia’s invasion of Ukraine on 24 March was met with severe Western sanctions, which quickly caused the ruble to depreciate and caused, in a spillover effect, volatility for the tenge. The tenge ended 4 March at 496 per USD, which was down 12.7% from the previous month, and down 17.6% from the same day last year.
Among several factors leading to the currency’s collapse were blows to remittances and trade operations caused by sanctions on Russia, the effects of which were made worse by Russia’s ban on cash exports exceeding USD 10,000 on 1 March. Notably, Kazakhstan’s exports to Russia were worth about USD 7.1 billion in 2021, and trade is expected to be heavily dented moving forward. Meanwhile, another crucial factor affecting the currency was the collapse of the Russian ruble, which affected all trading partners’ currencies by contagion. In addition, both the Russian Central Bank’s latest hike and the Fed’s announcement of an upcoming hike in March exerted further downward pressure on the currency.
The sizeable depreciation came despite an attempt by the Central Bank to stabilize the market through a considerable rate hike and market interventions. The Bank raised the base rate by 325 basis points to 13.50% in late February, while reporting interventions in the FX markets worth USD 137 million between 28 February and 4 March. Although higher energy prices should limit the tenge’s fall, the latest sanctions on main trading partner Russia are still set to overwhelm the currency.
Looking ahead, aftereffects of sanctions reaching the all-important energy sector—Kazakhstan uses Russian infrastructure for its oil and gas outflow—pose serious downside risks to the country’s external sector, and the country’s currency by extension. Moreover, additional sanctions on Russia’s trade, oil exports and payment systems pose further downside risks to the tenge.