Kazakhstan's National Bank requires companies to sell 50% of forex earnings

To improve the balance of the foreign exchange market, the requirement for quasi-public sector entities to sell 50% of their foreign currency earnings will be reinstated, Azernews reports.

"The relevant decree of the Government of Kazakhstan and the order of the National Bank have been prepared and will be adopted in the coming days," the financial regulator said in a statement, responding to the situation in the foreign exchange market after the national currency, the tenge, crossed a new "psychological" threshold last Monday.

In exchange offices in Kazakhstan's two largest cities, Astana and Almaty, one dollar was being sold for 502 tenge, although the exchange rate was 4 tenge lower the previous week.

"A combination of external and internal factors has recently led to a weakening of the tenge. The external situation remains unfavorable due to continued high volatility and global economic risks. The US dollar has continued to strengthen against the currencies of both developed and emerging markets," the statement noted.

The statement also mentioned that a pessimistic sentiment prevails in the oil market due to weak global demand recovery and expected increases in supplies from OPEC+. This has led to a decrease in oil prices to around 71-72 US dollars per barrel.

"In the domestic foreign exchange market, there is increased demand for foreign currency from economic agents, coupled with a limited supply. The growth in demand is driven by a rise in general economic activity, including foreign trade. The increase in budget expenditures and spending by quasi-public companies on infrastructure and investment projects is also contributing. All these factors combined are stimulating the growth of imports and, accordingly, the demand for foreign currency," said Moldabekova.

She also noted that "a decrease in the balance between supply and demand in the foreign exchange market negatively impacts the investment climate, raises the cost of investment projects, and has a generally pro-inflationary effect."

Previously, the requirement for the mandatory sale of 50% of foreign exchange earnings by companies was in effect until August 2023, when it was suspended due to changing macroeconomic conditions. However, this rule remains an effective tool that can be used promptly to smooth out market shocks.