Kazakhstan macro: Cross-currency rate swings to start reshaping Kazakh foreign trade

KAZAKHSTAN - Report 21 Jun 2022 by Evgeny Gavrilenkov and Alexander Kudrin

As in the past several weeks the Kazakh tenge continued to depreciate against the ruble and weakened to KZT/RUB 8.16 following the abnormal strength of the Russian currency, the KZT remained relatively stable against the dollar relative to levels seen before the period of high volatility caused by the Russian activity in Ukraine. Meanwhile, the tenge remained relatively stable against the dollar and appreciated against the euro. These currency moves will likely have important implications for the Kazakh economy, particularly for foreign trade flows. Kazakhstan may benefit from the current geopolitical transformation and establish itself as an important regional player.

In 4M22, imports from Russia accounted for 38.5% of Kazakhstan's total imports. Amid some strengthening of the Kazakh tenge against the euro and a dramatic depreciation of the former against the ruble, imports from Russia may start falling (at least in volume) as European countries, as well as China (and possibly Turkey) will export more to Kazakhstan. In dollar terms, however, Russia's share will still be high enough. A too-strong ruble and Kazakhstan’s dependence on imports from Russia were among the reasons for persistently high inflation in Kazakhstan in recent weeks (due to the high import prices of socially essential goods imported from Russia). If the country structure of Kazakh imports changes, then Kazakh inflation will start to subside, although consumption will be already affected as cumulative inflation y-o-y will remain elevated this year. A moderation of household consumption of goods will, in turn, moderate GDP growth as well, which will still be strong enough.

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