ANALYSIS: in the first half of July KZT/USD appreciation was under speculative moods and regulating influence

/IRBIS, Ruslan Dzubaylo, Vitaliy Tomskiy, July 22, 08/ - In the first half of July, USD rate showed confident downward dynamic. Decreasing didn't exceed 70 tiyn per dollar, however after half year stagnation on currency market, dollar rate was restricted by 120.10 and 120.90, such trend looks unusual. Below Informational Agency of Financial Markets IRBIS (Almaty) publishes its opinion on the situation on Kazakhstan currency market. Hydrocarbon raw material high prices support national currency According to preliminary data of Statistic Agency positive foreign trade balance of Kazakhstan in January - May 2008 made $14.43 bn. ($5.67 bn. for the same period of last year). Such significant growth of foreign trade balance was conditioned by both export growth by 60% in annual expression to $28 bn. and import falling to 15% ($13.6 bn.). Export component growth of foreign trade balance in its turn was conditioned by rise in price on main export commodities. Thus, hydrocarbon raw material, on which the most part of total country export came, increased by 60% for half of year. It is interesting that oil export in quantity expression for January - May decreased by 2.4% to 25.21 m. tones. Prices growth on other types of raw materials, exported from Kazakhstan also played its part. As a result, positive current operations payment balance of republic in Q1 2008 made $3.9 bn.. Let us remind that during all 2007 deficit of current account made about $7 bn. Analysts majority on pessimistic note said that the situation with payment balance will worsen because of crisis in Kazakhstan economy. Major foreign borrowings in oil and gas sector exert pressure on USD rate At the beginning of June, national Oil and Gas Company KazMunaiGaz started $2.5 bn. two-year tern syndicated loan. As informed, this loan was borrowed with the aim to refinance the previous loan, borrowed at the year beginning to finance Rumanian Rompetrol. After two weeks it was known on second KazMunaiGaz`s borrowing on foreign markets. June 24 during private offering of mid term notes (MTN) according to Rule 144A, company managed to borrow $3 bn. As a result, considering several maturities in bank sector (about $750 m.), net volume of borrowed money from foreign markets during this period exceeded $4.5 bn. Notwithstanding that majority of again borrowed money won't de directed to domestic market, such huge American currency flow-in contributed to the growth of speculative moods of separate participants. Further quarter payments increase tenge demand on the side of participants In the second half of June companies that operates in Kazakhstan will conduct different payments (mostly tax payments) by results of Q2. Thus, in July several kinds of income tax, value added tax (VAT), excise tax and royalty must be paid. Exporters companies, which are forced to convert its earnings in tenge for payments inside Kazakhstan, made major pressure on USD market. This factor traditionally made strong influence on USD rate in reporting periods. At the same time, according to IRBIS these payments will pass rather calm. Systematic measures of National Bank on supporting favorable liquidity level will allow to even negative influence of this factor. Other factors Regulator's position, which traditional exerts influence on domestic currency market, draws attention. Its activity during analyzed period contributed to KZT/USD appreciating. USD rate forecast Meanwhile, it is early to speak about serious KZT/USD appreciating. KZT/USD rate now is higher KZT120. In case of high current prices on energy resources retaining in mid term prospect, we may expect tenge appreciation lower than KZT120.00 per dollar. During nearest two months major foreign liabilities bank payments (IRBIS estimated them on $1.4 bn. in July and August) and decreasing standards of minimal reserve requirements since July 29, 2008 will likely to restrain USD rate within the current range. [2008-07-22]