Subject
Kazakhstan's exchange rate regime.
Significance
On August 19, the National Bank of Kazakhstan (NBK) announced it was relinquishing control of the exchange rate, thereby triggering a 23% decline in the tenge to a record 257.21/dollar. The tenge has since strengthened slightly to 241/dollar, as of September 2. The previous month, on July 15, the NBK had eased the corridor within which the tenge had been allowed to fluctuate against the dollar -- upwards by 13 points, from 170 to 198/dollar. While this exchange rate band was initially expected to last at least until 2016, a combination of fundamental market factors has prompted Kazakhstan's government to shift to a free-floating rate.
Impacts
Past and forthcoming cuts in public spending will contribute to the slowdown of economic growth and increase the risk of a recession.
Kazakhstan's move to abandon pegging the tenge could prompt competitive devaluations in other parts of Central Asia.
Socioeconomic volatility could lead to political instability as the president has yet to designate a successor.