Energy-rich Kazakhstan announced today it was abandoning its currency band for a free-floating exchange rate, in a move that triggered a 23-percent fall in the value of the tenge against the US dollar.
"The National Bank and the government have decided to implement a new monetary policy from August 20, 2015 based on an inflation-targeting regime, to cancel the trading band and move to a free-floating regime," Prime Minister Karim Massimov said at a Thursday session of the government.
The decision comes amid bleak price forecasts for crude oil, Kazakhstan's linchpin export.
Yesterday, the tenge fell by close to five percent against the dollar, the biggest drop since the national bank ordered a shock 20-per cent devaluation against the greenback last year.
The ex-Soviet country's 75-year-old President Nursultan Nazarbayev said yesterday that future economic planning in the country should be adjusted to assume oil prices at USD 30-40 per barrel and that belt-tightening measures would also affect showy national projects.
"In the past years, we have built a lot, increased staffing and salaries. Now however, there is a lack of funds and in connection with this there will be strict limitations on new projects," Nazarbayev told top government officials.
"For this reason it is necessary to place a moratorium on various initiatives until 2018."
Benchmark Brent crude is trading at just under USD 50 per barrel and the US Energy Information Administration (EIA) said last week prices will average less than USD 60 per barrel throughout 2016.
In addition to slumping prices for crude, which accounts for half of Kazakhstan's export, the national economy has been hit by falling demand in two key export markets, Russia and China.
China last week devalued its yuan currency affecting natural resource exporters across the world.
The slide of the Russian ruble on the back of Ukraine-related sanctions implemented by the West and falling hydrocarbon prices has also taken its toll on Kazakhstan, resulting in cheaper Russian products flooding the domestic market.
