Kazakhstan Devalues Its Currency By 18%

ALMATY, Kazakhstan -- Kazakhstan's Central Bank radically widened the tenge's trading corridor on Wednesday, allowing the currency to drop by almost a fifth from the previous day's close.

The once-robust, oil-fuelled economy -- Central Asia's biggest -- has been hit hard by the global financial crisis, which has brought economic expansion virtually to a standstill and left the Central Bank struggling to prop up the tenge.

On Wednesday, the currency slumped to 149.5 against the dollar after briefly piercing 150 per dollar on the Kazakh Stock Exchange, a drop of more than 18 percent from Tuesday.

It had traded around 122 to 123 to the dollar on Tuesday.

The Central Bank said it would now allow the tenge to fluctuate by about 3 percent, or 5 tenge, around the new level of 150 against the dollar.

"We have reached a new market equilibrium level, and we will defend it," Central Bank Chairman Grigory Marchenko told a news conference.

The Central Bank had long been expected to devalue the tenge in line with the ruble, which has lost about a quarter of its value since last October, as analysts drew parallels between the two neighboring countries' oil-driven economies.

Like Russia, Kazakhstan has been able to defend the tenge using forex reserves built up during years of windfall export revenues.

But Marchenko's reappointment as Central Bank chief last month signaled that Kazakhstan would take more assertive steps to try to improve the competitiveness of the $100 billion economy.

The government sees growth in 2009 of about 2 percent, while the International Monetary Fund sees it running at half that pace, or just 1 percent. This would compare with the government's preliminary estimate that growth slowed in 2008 to just above 3 percent from close to 9 percent in 2007.

This week's effective nationalization of the country's biggest bank, BTA, and No. 4 bank Alliance has paved the way for more decisive steps toward tenge devaluation to boost Kazakhstan's competitiveness -- a move praised by analysts.

The Central Bank said separately in a statement that it had used a total of $6 billion to support the tenge starting with the last quarter of 2008.

It said it had also decided to cut its refinancing rate to 9.5 percent from Feb. 5 from the previous rate of 10 percent and to loosen minimum reserve requirements for banks to free up about 50 billion tenge ($333 million) in funds.

Marchenko's reappointment has rekindled memories of 10 years ago when he took over at the Central Bank for the first time shortly after the tenge shed a third of its value following a 1998 financial collapse in neighboring Russia.

"I started working at the Central Bank last Monday," Marchenko said. "As you can see, we have already done quite a lot within these 10 days."