The Kazakh tenge depreciated by 4.7% against the dollar on April 10 in an unmistakeable reaction to the US sanctions assault on top oligarchs in Russia, which has caused the Russian ruble to come under the worst selling pressure since January 2016.

As the chain reaction spread in a country with imperative trade and investment links to the Russian economy, exchange offices in the Kazakh commercial capital Almaty that were selling dollars at KZT321 in the morning were demanding KZT332 by the afternoon and KZT334 by 6pm local time. No signs of panic or long lines were seen at the exchange bureaux, but the few who noticed the rapid slide of the tenge quickly became eager to rush for safer assets.

The tenge hit its lowest level in 11 months last October 6, reaching KZT345 against the greenback, but it recovered to KZT318 in March, before weakening slightly to KZT320.29 as of April 9. The sharp turn very much arrived on April 10 as Washington and Moscow exchanged angry words over the sanctions and the alleged chemical attack on civilians in Syria. “The rate was at 328 tenge when I arrived here, but it grew to 329.7 tenge while I was waiting my turn,” a local woman told bne IntelliNews at an Almaty exchange office.  

The tenge also toppled against the euro. On the day, it closed at KZT410, compared to the KZT393 recorded at the end of April 9.

A recent poll of analysts conducted by Reuters predicted that the tenge would remain stable or strengthen against the dollar during April due to expected strong oil prices, but that it would weaken over the next 12 months overall. But the unprecedented effect of sanctions on Russia may certainly disrupt such forecasts. The relatively fast depreciation rate seen on April 10 might potentially spill over into a dollar-buying spree within the next few days.

The Kazakh central bank, the National Bank of Kazakhstan (NBK), on April 9 reaffirmed its expectations that inflation may slow to below the lower band of the central bank's targeted 5-7% inflation range for 2018. However, the national lender may now find itself intervening to maintain the exchange rate, just as it did in the last four months of 2017—if there is a sustained unexpected devaluation, tenge-price inflation might be pushed up—contrary to its expectations.

The NBK’s policy rate, cut twice this year by 0.75pp in all, stands at 9.5%. When making the cuts, the central bankers said they were aiming to direct inflation to their target range. They had previously stated they were striving to maintain the policy rate at 4pp above the level of inflation. The inflation rate stood at 6.6% in March and at 6.5% in February.

Those looking for a brighter outlook might rate the chances of a continual rise in oil prices counteracting the effects of any panic caused by the ruble crash. Saudi Arabia was on April 9 reportedly pushing oil producers to aim for $80/barrel.

April 10 also saw the tenge strengthen against the Russian rouble, reaching as much KZT5, as opposed to the KZT5.77 rate seen the previous day.