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Kazakhstan: KZT devalued by 16%

Yesterday, the National Bank of Kazakhstan (NBK) unexpectedly devalued KZT nearly 16%. The magnitude of the adjustment is similar to the step in February 2009. The new target range for USDKZT is 182-188, i.e. the 185 central rate +/- KZT 3. We do not expect any material upward pressure on NDF rates in Kazakhstan, as it is likely that both local and non-resident positioning in the market was light. Moreover, we would not be surprised to see some profit-taking on KZT shorts, as some market participants might see the sharp devaluation as an overshoot which, coupled with a potentially slower sterilisation in the FX market and the reappearance of the State Pension Fund as an intermediator of KZT liquidity in 1H14, might actually fuel a decline of NDF rates in the near term. Meanwhile, if the regulator intends to gain more flexibility on the FX side, we would expect the NBK to consider FX swaps as a liquidity provision tool, given the thin security collateral pool in the banking system. For more details, see our Surprise KZT devaluation - Strategy and macro implications and KZT Adjustment - Impact on key corporates and banks, both of 11 February.
Maxim Korovin, Anton Nikitin
VTB Capital analyst


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