Plummeting Oil Prices and Trump's Tariffs Trigger Tenge Fluctuations
Revamped Take:
ASTANA LOSES TENGE LOOMING SHADOW: Here's the lowdown on the Kazakh tenge's tumble, blamed on oil prices and geopolitical turmoil, with nary a mention of U.S. tariffs.
Oil prices and world politics in a nutshell:When Donald Trump slapped new tariffs on imports, global stock markets shook like a yurt on a blustery day. The U.S. introduced a hefty 27% tariff on all Kazakh imports. Although Kazakhstan's exports don't directly feel these tariff stings, they triggered immediate aftershocks, shaking the tenge's stability.
So, what gives? Enter Galymzhan Aitkazin, a Kazakh economist, who rings the alarm bell for the tenge's troubles but attributes them not just to tariffs, but the dance of oil prices.
In his truly insightful Telegram channel, Aitkazin posits that the plunge in oil prices stands tall as the prime factor undermining the tenge. Oil prices had spiraled to a three-year low, with Brent trading at an anxious $63 per barrel, and Trump insisting on domestic oil production stimulation. This squeeze drives oil quotes even further down, adding more pressure to the tenge.
The National Bank of Kazakhstan outlines other culprits too, like weak global risk appetite, a nosedive in major U.S. stock indices, and a plummet in oil prices. The cherry on top? After April 3, eight OPEC+ countries collectively decided to increase production by 411,000 barrels per day.
In a fascinating twist, Kazakhstan's emerging market counterparts like South Africa, Russia, Brazil, Indonesia, and Mexico are facing similar currency troubles as the tenge. One would have thought, "When oil prices are on the slide, who would want a piece of the action?"— but markets often don't follow logic, do they?
The volatility in the oil market has also resulted in heightened trading volumes, according to the National Bank. On April 7, trades on Kazakhstan Stock Exchange (KASE) clocked in at a whopping $456.4 million, nearly double the average daily volume this year!
Yet, the National Bank has stayed mum on foreign exchange market interventions, saying it's watching the scene closely and ready to hop in if needed to prevent tempestuous exchange rate swings.
Petrol Prices and Inflationary Woes:Did we mention oil prices? Well, they're a beast for Kazakhstan’s economy, as oil exports fuel up to 60% of its revenue. The current price dip makes maintaining fiscal stability a slippery slope.
A significant hurdle is the country's fiscal breakeven oil price, which hovers around $80 per barrel (adjusted for non-tax revenues). Keeping prices below this mark could prove tricky, as it sets off economic disturbances.
Another nuisance is inflation, currently pegged at 10% year-on-year as of March 2025, within its designated range. However, external factors and utility prices might jack up inflation further.
The National Bank must maintain a delicate balance between monetary policy, oil prices, and inflation concerns. While it has held interest rates steady so far, it's ready to iron out those wrinkles if needed, keeping a watchful eye on the emerging risks on the horizon.
- The Kazakh economist, Galymzhan Aitkazin, argues that the tenge's volatility is not only due to U.S. tariffs, but also the dance of oil prices, with oil prices significantly contributing to the tenge's plunge.
- Despite Kazakhstan's exports not feeling the tariff stings directly, they still triggered immediate aftershocks, shaking the tenge's stability, which leads to a chain reaction, causing market volatility and increased trading volumes on the Kazakhstan Stock Exchange.
- With sports, such as football and basketball, being popular among Kazakhstan's youth, the economic instability and inflation ripple effects could potentially impact the average citizen's spending habits on sports-related activities, potentially impacting the industry as a whole.
