Analysis: weekly dynamics of USD/KZT exchange rate had been determined by the short term liquidity of the banks

/IRBIS, Oct.01, 99/ - Statistical results of the currency exchange market for last week show one and a half time decrease of devaluation speed: from 121.3% down to 76.3%. Unfortunately, an optimistic forecast of the National Bank regarding full stabilization of the currency market had not been justified yet. The trend remains very high and incomparable with current yield on other financial instruments. But the stressful situation was passed, spreads shrank, the market returned to its normal course of work. Beginning of the week was characterized by very high devaluation expectations fostered by disagreements between the government and the parliament about the budget-2000. Nonintervention of the National Bank into the trades on Monday made the dealers even more alert. The week was preceded by an active market where the price of the dollar constantly grew and with an accelerated speed. Day after day trade volumes kept falling, but spreads grew. The market seemed to be overheated. Because of the reasons mentioned above the trade volume on Monday was not great. But on Tuesday, when the news regarding the consequences of unaccepted budget was conceived, the dealers were ready to buy dollars at any price. Trade participants state that this day the National Bank made a big dollar intervention to stabilize the exchange rate. Relatively low offer price of an American currency of countryТs head bank rendered the market very active, and trade volumes grew threefold, with the dollar exchange rate reaching up to 141.3 tenge per unit. But the goal Ц to wear out the banks Ц was achieved. After the trades all market indicators displayed a sharp decrease in the banksТ solvency, deficit of free funds, and actually, impossibility of continuing further a Уcurrency raceФ even by major operators. At the same time, Tuesday brought into the market a number of positive news. Reaching a consensus at the parliament left a hope for granting IMF loan. Placement of the third issue of euronotes reduced the risk of default. After a long silence, the National Bank supported positive trends with optimistic forecast at the right time. Simultaneous effect of the factors mentioned above, with an extreme overbought of an American currency and low liquidity of the banks being the major ones, made the banks to sell off dollars to restore their solvency before the end of the quarter. The process continued on Thursday when liquidity of the tenge was still low. But at that moment the market participants expected growth of demand for the dollar on Friday, as more than 4 bln tenge from repayment on state securities should get into the market. By the evening of Thursday the dollar quotations had a steady trend to strengthen, but the price of short money sharply went down. The news about the resignation of the government on Friday did not make any effects on the market. After replenishing their correspondent accounts, the banks showed up on the trade floor to make up for lost time. The dollar exchange rate went up again quite fast. By the results of the week, it seems as if the tenge still remains very weak. No objective factors are observed which can dramatically firm the national currency in the next week. More likely, the participants will restrain themselves from active actions and prefer waiting tactics after restoring their currency positions. Personnel reshuffling at the government can change the situation on the market. Government resignation has never made a currency market stable in any country, but unstable. There is no reason for the demand for the dollar to fall. Therefore, the tenge will prone to weaken in the next week.