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Kazakhstan devalues tenge by 18%

KAZAKHSTAN'S central bank yesterday devalued the tenge by 18 percent, joining Russia, Ukraine and Belarus in abandoning attempts to prop up exchange rates as currency reserves fall.

Central Asia's largest energy producer will keep its currency at about 150 tenge to the United States dollar, the Almaty-based National Bank of the Republic of Kazakhstan said in a statement. It may fluctuate about 3 percent either side of that rate. The tenge fell 15 percent to 143.98 in Kazakhstan, from 122.32 per dollar on Tuesday.

Kazakhstan is devaluing its currency as local banks and firms struggle to refinance debt and a recession looms. The nation, holder of 3.2 percent of the world's oil reserves according to BP Plc, is slowing after a decade-long boom during which the economy grew an average of 10 percent a year. The government now sees a rise of 1 percent this year.

"The story on why they are devaluing is very similar to Russia and in certain instances, it's even more extreme," said Bhanu Baweja, head of emerging-market currency at UBS AG in London. "The swing from a current account surplus to deficit is very extreme. There's also a possible negative growth this year."

The central bank's decision comes a day after Goldman Sachs Group Inc forecast a 19-percent devaluation. The currency may fall to about 175 by the end of March, Societe Generale SA said on Monday. Nomura Holdings Inc said last month that Kazakhstan should allow a 50-percent drop, Bloomberg News reported.

The central bank is "walking away from supporting the tenge exchange rate in its previous corridor to save foreign currency reserves and support local producers' competitiveness," its statement said.

Kazakhstan depleted its foreign currency and gold reserves by 6 percent in January as it sold more dollars. The holdings slumped US$1.6 billion in January from US$19.4 billion in 2008, the central bank said yesterday.

The central bank will cut the refinancing rate to 9.5 percent today and cut its reserve requirement by 0.5 percentage point, Chairman Grigori Marchenko said at a press briefing.

"Kazakhstan most probably may not need to provide additional help to commercial banks with their payment of foreign debt after devaluation," Marchenko said.


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