National Bank: old songs in new style

Date: 17:16, 22-04-2016.

Almaty. April 22. KazTAG - Sergey Zelepukhin. It seems that the management of the National Bank has learnt nothing from the past mistakes. Despite numerous promises of Daniyar Akishev after his appointment as a head of the regulator concerning strict adherence to the policy of free exchange rate, in fact, the country's main bank still continues regulating the exchange rate. And his arguments in favor of foreign exchange intervention to smooth exchange rate fluctuations seem, to put it mildly, unconvincing and contrary to previous promises of the National Bank.

Regulator's arguments

However, we must pay tribute to Daniyar Talgatovich that he is not trying to hide the monthly volumes of the monetary authorities' intervention in the currency market, and he talks about them openly. But at the same time, the arguments about why the controller does it, call much doubt in  consistency in the exchange rate policy. Naturally, it makes more impact on greatly undermined trust after four landslide devaluations in the past 2.5 years.
In the interview to Reuters, the head of the National Bank  admitted that in the first month of spring the regulator continued buying dollars actively . "In March 2016, the National Bank in the domestic foreign exchange market  carried out interventions in the form of foreign currency purchases in the amount of $ 1.236 billion, which made 42% of total sales ($ 2.960 billion)," said D. Akishev.
At the same time, he recalled that in February the volume of purchases amounted to $ 474 million. Thus, the regulator in March bought 2.6 times more of the US currency than in the last month of winter. The head of the National Bank explained this action by the fact that in March, the domestic foreign exchange market faced significant imbalance, which was formed as a result of low demand and high supply of foreign currency.
Earlier D. Akishev also tried to explain the activity of the regulator in the foreign exchange market by the intention to avoid sudden changes in the exchange rate. "Many people think that the National Bank can turn the course in another direction. Formally it can, but what for? If the exchange rate moves fundamentally at some point, this movement we do not overlap and do not unfold. If we understand that internal circumstances happened, when there is a very large supply of foreign currency, the National Bank enters the market ",  he explained.
According to him, the regulator is interested in prevention of  sharp fluctuations due to speculative operations of individual players, conditioned by the small size of the market.
"But if fundamentally tenge should subside, it subsides, if it is supposed to get strengthened, it strengthens. We have reached the exchange rate, when the foreign exchange market supply and demand are balanced, " said the head of the National Bank.

The feeling of deja vu

Following these arguments of D. Akishev here comes the feeling of deja vu, we still recall the statements on exchange rate policy by Kairat Kelimbetov and Grigory Marchenko on their posts of heads of the National Bank.
For example, in October 2013, speaking to the Senators, Kairat Kelimbetov said that the National Bank does not intend to tolerate high fluctuations in the value of currencies. "The situation on the currency market is stable. There is no ground for concern. Fundamental factors determining the exchange rate trends have not changed. We will continue our policy on smoothing of sharp jumps of the exchange rate, " he said.
In fact, that time the price of Brent crude oil was $ 110 per barrel and the exchange rate was in the so-called "controlled floating".
Mr. Marchenko in February 2011, when he was a chairman of the National Bank said "The state of the fundamental factors now says that there is  high probability of strengthening of the national currency. The National Bank will provide exchange rate stability and prevent sharp strengthening of tenge, " he said then.
It should be noted that this statement  was made by Marchenko  in the period when Brent oil prices rose and stayed above $ 100, which created the preconditions for strengthening of tenge.
Not hard to see that these statements by two former chairmen of the National Bank and one of the current were made like with a blueprint, and they were made when there were more objective preconditions for strengthening the national currency.
But their essential difference lies in the fact that the statements of D. Akishev are voiced on the background of declaring of policy of free exchange rate.  K. Kelimbetov and G. Marchenko did not speak about such policy, that time there was a regime of controlled floating tenge rate. And it was called so because the National Bank actively intervened against the strengthening of the national currency. And it is what the regulator was doing, according to D. Akishev in February and March.
So talks about the fact that the monetary authorities consistently followed the policy of free floating tenge, sound somewhat deceitful, when in fact there is regulated exchange rate regime.

One thing on the word of mouth, different thing practically

But this is only one moment. Another important aspect is that the National Bank still does not keep its promises. At least, it looks like that. Back in November last year after another devaluation of  tenge, the regulator issued a press release stating about reduction of its participation in the domestic market in order to save the reserves. At the same time the National Bank made it clear that if necessary, it will return to foreign exchange interventions.
"The National Bank reserves the right to smooth large fluctuations that do not reflect supply and demand and impact of fundamental factors. Further dynamics of the tenge exchange rate will be formed under the influence of factors that are determined in the main dynamics of the price situation on the world financial and commodity markets ", stated the message.

But, as we saw in February and especially in March of this year, despite the fact that "the ratio of supply and demand and the action of the fundamental factors" were in favor of strengthening of tenge, the regulator instead of keeping its November's promise to allow the national currency to recover the losses in tandem with dollar, decided to support the US currency.
And if in February, the head of the National Bank had the opportunity to justify the intervention with the tax week, in March D. Akishev had to say exactly what  earlier said the former heads of the monetary authorities.
But if in the case of G. Marchenko in February 2011, he directly pointed out that the regulator intervenes against strong strengthening of tenge, the current head of the National Bank is trying to use neutral generalities when he speaks about smoothing of exchange rate fluctuations. And  it is impossible to understand why Daniyar Talgatovich says so, because the regulator now declares that adheres to the previously proclaimed policy of free floating tenge.
But you will agree, the discrepancy of words and deeds does not play in favor of the monetary authorities, and certainly does not bring any trust to them.

Previous National Bank’s error - not a lesson?

Rather than openly admitting that the rate formation in Kazakhstan  can not be completely free in terms of the structural imbalances of the economy and dependence on the income of the state budget from the raw sector and related industries,  the National Bank is trying to convince the public in the thing, that does not exist. Namely, that the exchange rate is formed freely.
Doesn't the National Bank understand that it is highly harmful to its image as it develops the impression that the National Bank remembers about the free formation of the rate only when it is necessary to carry out another devaluation? But when the objective situation with the prices of oil and other raw materials begins to play in favor of the national currency, the controller again switches to controlled exchange rate regime, giving it for intervention against sharp fluctuations. But then it becomes unclear why the National Bank did not actively prevent three devaluations over the last 8 months. After all, in fact, the devaluation -  is also a sharp fluctuation of KZT exchange rate, only in the loosening direction.
Thus, there is confusion and substitution of concepts. As a result, it seems that the National Bank again contradicts itself and acts oppositely to what it had declared. It turns out that the previous mistakes of the National Bank did not teach the current top management any lessons.

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