Oil price crash-hit Kazakhstan's currency tumbles over 23% in free-float trading

After Venezuela's currency crash, it's now the turn of Kazakhstan's currency to dive owing to oil price drop in the global markets. Kazakhstan's currency 'Tenge' steeply nosedived in a free float trading. The Kazakhstan government has allowed free-float trading in its currency.

The Tenge fell 23% to 257 against the US dollar on Thursday. The government and the National Bank have started a new monetary policy that's based on the inflation-targeting regime. The new monetary policy is effective from 20 August 2015 onwards.

Kazakhstan's linchpin export 'Oil' contributes half of the total revenues of Kazakhstan government and the central Asian country is suffering severely from the oil price crash in the international markets.

Geographically located between China and Russia, Kazakhstan is forced to allow free-float trading in its currency. Kazakhstan's President Nursultan Nazarbayev in a message to the nation said: "Lower oil prices demanded action. Due to the new economic reality, it's needed to adapt to oil prices at $30-40 per barrel. Future economic planning should be adjusted to assume oil prices at $30-40 per barrel."

Businessmen and foreign exchange (forex) firms are struggling to adjust to the sudden change in the currency value.

Speaking on the current currency situation in a government meeting, Kazakhstan's Prime Minister Karim Massimov said: "Authorities were abandoning a currency band for a free-floating exchange rate amid bleak price forecasts for crude oil."

Kazakhstan last year devalued its currency by 20 percent against the US dollar and since then,the ex-Soviet nation has been facing economic challenges.

The oil price in the global markets is hovering at $40 a barrel on Thursday indicating six-and-a-half year low. On the other hand, the sudden increase in the US inventories is expected to spoil the market further as it'll result in oil supply glut.

Not only oil price drop but also sluggish demand in Russia and China markets is also impacting Kazakhstan in a negative way. China last week devalued its currency, Yuan. On the other hand, Russian currency Ruble also fell 75 against the euro. Ruble recorded this fall against the euro for the first time in the past six months.

The fall of Russian currency is also worsening the economic conditions in the Kazakhstan's economy. The weaker Ruble is resulting in flooding of Russian products in Kazakhstan market.

Some foreign investors were waiting for the Kazakhstan's currency devaluation, but when it happened it's further worsening the situation. Maybe the timing of the move was not right. The currency devaluation has put small and medium size enterprises (SMEs) into uncertainty. This has further led to the closure of some shops of car dealers.

According to VTB Capital, a Russian bank, Kazakhstan's currency is still overvalued, when compared to drastically weakened the ruble in Russia. The current uncertainty is understandable and it takes some time for gradual adjustment of Tenge-US dollar spread. Anxiety has led the panic people to queue up at foreign exchange bureaus to know where Tenge is heading.