Kazakhstan thus followed Russia, Ukraine and Belarus in abandoning attempts to prop up exchange rates with its hard-won reserves. In January, Kazakhstan spent more than 6% of its foreign currency and gold reserves to support the tenge, with total holdings slumping by $1.6 billion from $19.4 billion at the end of 2008.
Some analysts believe that the country could actually post negative figures for the first time since the Russian financial crisis of August 1998.
That would place additional pressure on the currency, with analysts at Nomura arguing that the country should allow the tenge to fall by as much as 50%.
| "Right now Kazakh bank debt is a much safer investment than Kazakh bank equity" Milena Ivanova-Venturini, Renaissance Capital |
In the wake of the devaluation retail prices shot up by 20% to 30%, and further price rises are expected. Meanwhile, the devaluation of the tenge has placed the country’s banking sector under additional strain as it struggles to cope with the twin challenges of deteriorating asset quality domestically and repaying the $11 billion of foreign-currency-denominated international debt that falls due this year.