On the Ruble–Tenge Exchange Rate

I am getting a lot of questions about the ruble-to-tenge exchange rate. I read and hear many explanations, ranging from conspiracy theories to outright absurdities.

Back in March the rate was 120 rubles to the US dollar, and now it is 50. Why is this happening, and why is the ruble worth 9 tenge?

The tenge is not pegged to the ruble, and the NBK has recently pursued a policy of a free-floating tenge. This means the explanation for the phenomenon lies not in the offices of the National Bank but in economic fundamentals.

Russia is in a similar situation. So let us establish what determines supply and demand in each case, and what we should do.

Let us start with Russia. Why has the ruble strengthened so sharply?

Several reasons can be singled out:

1. Russia's exports in monetary terms have not fallen, because higher energy prices have offset almost all of the losses. Foreign currency therefore keeps flowing in systematically and regularly.

2. Imports have collapsed, owing to the departure of most foreign companies from the Russian market. As a result, there is no domestic demand for foreign currency. Outbound tourism has also fallen, which has further reduced the need for foreign currency.

3. Sanctions against many companies have led Russian businesses to begin repatriating capital and cutting foreign investment. This is an additional inflow of foreign currency.

4. The government has stopped applying the budget rule under which the Ministry of Finance bought up any surplus foreign currency on the market when energy prices rose.

That is why the ruble has strengthened so much in Russia at the moment. But this will not last, and nothing good should be expected from it for the Russian economy.

First, entire industries in Russia are suffering, such as metallurgy and food production. Second, new import chains will be built: through parallel imports, through new suppliers from China, Turkey and India, and through import substitution. Third, the current rate helps to curb inflation. Fourth, many of the sanctions have been introduced but are not yet working. The oil embargo is one example. Exports will therefore decline by the autumn. I think the sanctions will not stop there and will continue to weigh on the Russian economy. For that reason, I believe the ruble will weaken significantly in the autumn.

Now, Kazakhstan

If you look at the volatility of the tenge, you will see that the rate can now strengthen to 415 and then slide to 470. This is a matter of temporary imbalances between supply and demand: when there is demand for dollars, there are no sellers, and vice versa.

Fundamentally, our situation is as follows:

1. Exports have grown, and dollars are coming into the country in sufficient quantities. The problem is that exporters do not sell the dollars at the moment they receive them.

2. Imports have not grown as much, but they are nonetheless rising.

3. As exporters' incomes grow, so do capital account flows: dividend payments and repatriation of previously received investment.

4. Tax payments are made quarterly, while dividends are paid once a year.

5. Foreign investment is declining because of the global situation, and so it is declining in our country too.

The Kazakhstani market is so small that any significant event moves the exchange rate. For example, the rate of 415 tenge to the dollar that everyone saw in May was the result of tax payments due by 25 May and a temporary drop in imports caused by the disruption of logistics chains.

In June we see the tenge weakening to 470, owing to dividend payments and the start of the holiday season.

In August we will probably see the tenge strengthen, since it is a tax month and, thanks to higher prices in the second quarter, payments will be substantial.

So with respect to the ruble, we have been caught in a classic scissors effect: our currency has fallen against the dollar for the reasons I set out above, while in Russia the ruble has strengthened. In the autumn we will probably see the rate return to something close to the market level of 5–6 tenge per ruble.

At the same time, I am against artificially holding back the tenge, because that leads to devaluation in the future. We need to focus more on institutional measures that would reduce temporary shocks.

What needs to be done:

1. Revise the procedure for paying taxes by subsoil users;

2. Improve the investment climate in order to attract investors;

3. Develop the country's stock market in order to attract speculative investors and to develop instruments for hedging against currency imbalances;

4. Not restrict the movement of capital;

5. Reduce the shadow economy;

6. Pursue an adequate monetary policy;

7. Reduce import stimulation funded from the state budget;

8. Simplify access to international markets for domestic companies.

That, in brief, is the current situation with the exchange rate.