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Tenge May Be Devalued Further on Oil and Banks, UniCredit Says

By Emma O’Brien

Feb. 5 (Bloomberg) -- Kazakhstan may be forced to allow further devaluation in the tenge should oil prices continue to decline and local banks seek more government bailouts, according to UniCredit SpA.

The former Soviet republic allowed its managed currency to weaken as much as 22 percent against the dollar yesterday in a bid to preserve reserves and rebalance the economy. Kazakhstan’s economic growth may slow to 1 percent this year, according to the government, as the global financial crisis saps demand for energy and banks struggle to refinance debt.

“Continued deterioration of bank asset quality could trigger another round of capital flight and bank runs,” analysts Julia Bushueva and Vladimir Osakovsky wrote in a research note today. “A further decline in oil prices could further undermine the country’s trade balance and current account.”

The tenge weakened 0.3 percent to 150.0900 per dollar by 8:58 p.m. in Almaty.

The central bank said yesterday it will buy and sell foreign currency to defend the new 150 per dollar level of the tenge. They may be successful in stabilizing the currency in the “near term,” because the shallowness of local financial markets means policy makers can better prevent speculative attacks on the tenge, UniCredit said.

While the devaluation will make foreign debt repayments more difficult for Kazakh banks, it benefits companies in the mining and metals sectors such as copper miner Kazakhmys Plc, Eurasian Natural Resources Corp. and Kazmunaygaz National Co., the state- run energy company, the note said.

“The metals and mining sector is set to benefit the most from devaluation, as nearly all of Kazakh miners’ costs are incurred in tenge,” the analysts wrote.

New York oil prices have slumped 72 percent from a July record to $40.23 a barrel. UniCredit forecasts Kazakhstan’s economy will contract by 1.3 percent this year, the note said.