Galim Khussainov
Inflation and the tengeBankingLending and mortgagesTaxationEconomy and public policyManagement

Inflation and the tenge · 2 min read

Why the Tenge Stands Still While the Ruble Strengthens

Translated from Russian with the help of AI. Original: Russian version

The tenge has been stable against the dollar while the Russian ruble strengthens, which is driving up the prices of Russian goods and fuel. A strong exchange rate can only be sustained by growth in labor productivity.

I decided to look at how the exchange rates of our main trading partners' currencies have moved against the tenge.

What I understand least of all is how it can be that the tenge has been very stable against the dollar lately, while the Russian ruble keeps strengthening. Our economy is highly correlated with Russia's, both in structure and in trade ties. Russia is our main trading partner, and it exports to world markets roughly the same things we do.

In Russia, the ruble's exchange rate is, more or less, set by the market. In August 2015 the Kazakhstani tenge was supposedly set free to float as well. So why has the ruble done nothing but strengthen against the dollar lately, while the tenge is as stable as a tank stuck in a swamp?

Frankly, I do not understand the logic of this or who it benefits. But here is what we see now:

  1. Russian goods have started to become significantly more expensive, and the first indicator is fuel prices. We depend on Russian fuel, and everyone has long since noticed that fuel keeps getting more and more expensive.
  2. The tenge will be strong and stable against the main currencies if, and only if, labor productivity across the country grows at least as fast as that of our main trading partners. Labor productivity grows thanks to good organization and high-tech equipment. When the tenge is weak and inflation is being held down, high-tech equipment becomes unaffordable, because its payback, calculated on the domestic market, becomes unattractive.
  3. With a weak tenge and high imports of consumer goods, the purchasing power for domestically produced goods falls, because the real incomes of the population fall, and domestic producers suffer as a result. This is because imports take a growing share of household spending.

Published in: Facebook, 16 January 2017

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