Home Forex IMF urges Kazakh central bank to enhance policy credibility

IMF urges Kazakh central bank to enhance policy credibility

by Jonathan Adams
Kazakh central bank

Kazakhstan has a nominally freely floating exchange rate, but it took a number of steps to prop up its currency after it dived in line with crude prices

The International Monetary Fund (IMF) urged Kazakhstan on Thursday to enhance the credibility of central bank policy after the oil-exporting nation gradually tightened foreign exchange regulations amid the energy price slump.

The Central Asian country has a nominally freely floating exchange rate, but it took a number of steps this year to prop up its tenge currency after it dived in line with crude prices, hit by the coronavirus pandemic.

Those measures include direct interventions by the central bank – which it says are aimed at curbing excess volatility – as well foreign currency sales by a sovereign fund and state-owned companies, and tighter controls on forex purchases by local businesses.

In a post-visit statement on Thursday, the IMF said the central bank’s “commitment to inflation targeting is to be commended”.

It implies maintaining a flexible exchange rate to serve as a shock absorber as was demonstrated in the spring, while promoting policies that help reduce dollarization and implementing reforms to gradually reduce the impact of exchange rate volatility on inflation, the Fund said.

The tenge lost more than 10% of its value against the dollar in March, but has since recouped some losses and remained broadly stable over the last few months.

In this regard, enhanced policy credibility will benefit from strengthening the (central bank’s) independence, setting a credible target, and improving monetary policy transmission, which would all help better anchor inflation expectations, the IMF said.

Kazakhstan, which has over $56 billion stashed away in its rainy-day National fund replenished by revenue from oil and metals exports, has not borrowed from the IMF for decades.

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