Yuan's devaluation to impact Kazakh economy

/By AzerNews/

By Aynur Karimova

The decision of the world’s second-largest economy - China - to devalue its national currency has unsettled global financial markets.

The Central Bank of China set the daily reference rate at 6.3975 yuan to the dollar, from 6.4010 the previous day, the China Foreign Exchange Trade System said. That was also slightly stronger than Thursday’s close of 6.3982 yuan.

Despite the fact that China's decision is viewed as an attempt to boost exports by making its goods cheaper abroad and to become one of the reserve currencies in the International Monetary Fund’s special drawing rights group, yuan's depreciation put financial markets on edge, sparking worries of a “currency war” as other countries feel pressure to also devalue their currencies.

The yuan's devaluation has left Kazakh analysts wondering what it might mean for their country.

Sabit Khakimjanov, the director of research at the Halyk Finance JSC, believes that the depreciation of the yuan might increase the likelihood for the devaluation of Kazakhstan's national currency, the tenge

"First, yuan's depreciation will further strengthen overvaluation of tenge. This is certainly an additional handicap for Kazakh producers, but when considering the fact that tenge has greatly overvalued against the ruble by 20-25 percent in real terms, the devaluation of yuan by 2 percent is relatively not too big," he told local media.

The expert also noted that Chinese currency's depreciation, like any other unforeseen factors, may become quite plausible explanation for tenge's devaluation.

"According to the baseline scenario of Halyk Finance, the tenge will weaken against the U.S. dollar, sliding by about 6 percent a year over the next two years," he said. "This is a baseline scenario and it will happen regardless the policy of the U.S. Federal Reserve System. According to an alternative scenario, the tenge will depreciate by 20 percent against dollar, but the probability of devaluation is less than the probability of creeping depreciation. So, the depreciation of yuan will increase the probability of devaluation [of tenge], but will not make it the baseline scenario," Khakimjanov stressed.

Several experts consider the devaluation of yuan as a positive factor for Kazakh exporters; while others claim that the depreciation of the Chinese currency not will have any impact on either the Kazakh economy, or the tenge, as Kazakhstan is not a rival of China.

"There will be a shift towards the decrease in the world oil prices. Kazakhstan's economy will lose grounds even more. Kazakhstan will be forced to increase expenditures, and the balance of payments of the country will get even worse. I believe that the devaluation of the yuan is more a political decision, rather than economic," economist Pyotr Svoik told local media.

The devaluation of yuan, as well as Kazakhstan's lingering problems – the depreciation of the Russian ruble and the decrease in oil prices – will impact the exchange rate of tenge. As a whole, Kazakhstan will face difficult times as the country's imports and exports will decrease. The picture is far from rosy for Kazakhstan.