The Main Points of Aliya Moldabekova, Deputy Chairman of National Bank on the Situation in the Money Market in November

The lowered risks that were the results of the uncertainty due to the elections in USA and the information on the successful outcomes of COVID-19 vaccine tended to bring a positive external image in November. The prices for oil rose. The global behavior at the markets had an impact on tenge.

The key factors that had an impact on tenge behavior in November

The moderate strengthening of the tenge currency was the result of the general positive images both in the external and internal markets.

There is no doubt that the main news in November are the successful trials of vaccine against the coronavirus by several pharmaceutical companies. On November 9, there were news that the potential vaccine against the coronavirus, developed by Pfizer and BioNTech, showed its 90 percent effectiveness during the trial procedures. Later on, on November 16, the positive results of the Moderna vaccine were published, its effectiveness was 94,5 percent. As there were expectations for the coming vaccines and demand recovery for hydrocarbons, the oil grade quotations rose at the end of November from 37.5 to 47.6 dollars per barrel.

Moreover, the elections in USA have smoothened the tensions among the global investors that led to the revaluation of risks.

The development of the vaccine and the results of the elections have brought a positive “sentiment” to the global market and a demand increase in risks assets. All this led to the corrections of market indexes because of the second wave of the pandemics. In November the assets rose in all the markets: in US the indexes of S&P500 and Dow Jones rose by 10,8 and 11,8 percent respectively; the Asian Nikkei 225 and Hong Kong Hang Seng - by 15 percent and 9,3 percent, and the European indexes DAX and FTSE100 - by 15 percent and 12,4 percent.

In addition to the prices for oil and the general increase of risk appetite of investors at the global markets, one more factor to strengthen the tenge at the end of month was the tax week. November is the tax month and the exporters were making huge sales of the foreign currency for tax payments.

All these factors have positively influenced the tenge behavior in November. As a result, within a month tenge have strengthened its position from 432,64 to 423,87 or by 2 percent.

The Main Trends and Events that Influenced the Currency Dynamics in the Developing Markets

As a matter of fact, the currencies of the developing countries majority were rising at a positive pace. The Brazil Real strengthened by 6.6 percent, the Mexican Peso and the South African Rand - by 4.7 percent. Alongside with the general movement a support to the local currencies was given by the local factors. In Russia, it is a tax period due to which the Russian Ruble rose by 3,7 percent. In Turkey, the dismissal of executives of the Centrobank and Ministry of Finance made no impact on the Lira to strengthen by 6.2 percent at the background of the key rates increase by 4.75 percent, to 15 percent.

At the beginning of December this trend has continued and tenge was not an exception, from the very beginning of December the currency has strengthened from 423,87 to 421,51 tenge per barrel or 0,6 percent. The main reason for this is the positive dynamics at the oil market.

The “rallies” at the oil market have continued in December due to the consensus achievement by the Organization of Exporting Countries (OPEC) by the gradual steps in oil production increase. From January 2021 the increase in the oil production will amount 500 thousand barrels within 24 hours, which is the fourth part of the planned volumes, that was positively welcomed by the global markets. On December 4 the prices for oil for the first time from March 2020 rose exceeded 49 US dollar per barrel.

With the abovementioned events in November and December taken into account, that are related to the hopes for vaccine development and renovation of the oil market, many economists reconsider their forecasts and the investors are revaluating their risks. As a whole, the economists are positively estimating the perspectives of 2021 and are tend to the scenario of the gradual renovation of the world economy.

Some international analysts, such as Goldman Sachs and Bank of America, give the positive estimates for 2021 on the markets of the developing countries as well as for tenge with the expectations on the fundamental factors dynamics taken into account. Moreover, the risks related to the pandemics are still present at least until there is a safe and effective vaccine and the dates for massive vaccination are known.

About the Situation in the Domestic Currency Market and Currency Interventions

In November the external and internal factors are positively impacting the market. As I was mentioning before, an increase in foreign currency supply was due to the seasonal sales by the exporters for tax payments. An additional support was rendered by the sales from National Fund as well as the sales in currency gains by the by the quasi-state sector for 244 million US dollars.

Within a month the situation at the currency market was showing the influence of the fundamental factors. There was not any necessity in handling currency interventions.

About the Influence of the Situation at the External Markets on the Reserve Assets

As per the preliminary estimates, the international reserves have lowered their positions from 1,1 billion US dollars to 33,6-32,5 billion US dollars.

The main reason for the decrease of the reserves was the steep fall of prices within the last four months for gold from 1876 US dollars to 1772 US dollars per ounce or by 5,5 percent. The success with the vaccine development and the renovation of the business activity around the world have brought to the fall of the demand for gold as for the protection asset. The gold portfolio was decreased within November by 1.2 billion US dollars.

Nevertheless, in December the prices for gold were recovering and at the present moment, it achieved the level of 1870 US dollars per ounce. One of the reasons for its demand was the weakening of the dollar position before accepting the fiscal stimulus in USA.

The currency part of the reserves have risen by 100 billion US dollars at the expense of the rise of the correspondent accounts of the second level banks.

About the Assets of National Fund

As per the preliminary data, the assets of National Fund for the end of November amounted 58.0 billion US dollars, increasing within a month almost by 1.7 billion US dollars.

As I already mentioned, the news about the successful vaccine development as well as the positive data on the quarter report of the leading companies of the world were positively accepted by the participants of the money market. As a result, there was a considerable increase in the asset indexes. So, the revenues for the global asset indexes MSCI for November composed 12,8 percent.

With the optimistic scene in the markets, the investment revenue of National Fund in November amounted 2 billion US dollars, 1.6 billion US dollars of which comes from the asset portfolio. The investment revenue from the beginning of the current year achieved almost 3 billion US dollars.
In order to maintain the fulfilment of obligations that issue the guaranteed transfer to the republican budget for the amount of 230 billion tenge, in November there were sales of the currency assets of National Fund for the amount of 541 billion US dollars. With this, the currency inflow into National Fund in November composed 198 billion US dollars.

About Tenge Currency Dynamics at the Volatile Conditions in the Markets

The tenge dynamics shows the dynamics of the fundamental factors. An increase in the volatile conditions of tenge relates to the increased volatility at the external markets at the conditions of the unprecedented shocks of 2020. For example, the average index of volatility of VIX rose by twice, from 15.4 percent in 2019 to 30 percent in the current year. The average day volatility of prices for oil rose from 2.1 percent in 2019 to 4.3 percent in 2020.

The volatility of tenge, as an objective consequence of the floating currency rate, brings some corrections to the currency and minimizes the accumulation of disbalances in the economy. The maintaining of the tenge currency from weakening will lead to the strengthening of the real currency exchange rate and to losing of the competitiveness of the domestic economy within the trade partners. And, on the contrary, the hindrances to strengthening of the national currency will lead to the excessive weakening of the real currency exchange rate and to the rise of inflations processes.

Reasonable volatility is the ground for the normal functioning of the currency markets, and it leads to the rational behavior of the market players. National Bank will not prevent the rational volatility of tenge. The interventions will be handled only for the purpose of risks limitation, maintaining  financial stability and smoothening of the destabilizing short-term fluctuations of the currency rate that do not have any fundamental ground in it.