Analysis: dollar firms under the influence of accumulated demand of BST clients during the holidays and demand of the population

/IRBIS, Jan.14, 00/ - From January 10 to 14 exchange rate of the dollar at Kazakhstan stock exchange (KASE) conformed with the trend established at the first trades of the new year. Throughout the period the American currency grew steadily relative to tenge: exchange rate of the dollar rose 6- 17 points everyday. Resulting growth rate is estimated at 0.46% or 23.9% APR trend. Dealers were not interested in euro and deutsche mark, everybody was focused on the U.S. dollars. Among the factors that caused strong growth of the dollar in domestic market following were the most important. First - so-called accumulated demand. Due to the threat of the year 2000 problem the National Bank recommended the banks of the second tier (BST) to restrict themselves to only maintaining internal accounts from December 30 through January 5. As a result no settlement of accounts were made, and financial market of Kazakhstan worked for the future. During this time bank clients have accumulated significant volume of orders to buy foreign currency. As a result, demand of the BST, which were mainly satisfied by the end of observed period, for dollars was excessive at the first trades of the Exchange. Second factor - market for cash currency. In December sharp increase in volume of money in circulation due to pension debt payments generated intense interest of the population in the sector of exchange of cash. It did not brought about uncontrolled situation in financial capital of the country - Almaty, but in other regions of the country, especially in the north, demand for dollars in cash has grown significantly. Dealers note it is profitable to sell dollars in regional centers today. Using the holidays, employees of the exchange booths noticeably increased the exchange rate of cash dollars, thus widening the margins. Since the tax on purchases of cash currency was cancelled, banks of the second tier got active in the market. Relations between exchange sectors for cash and non-cash dollars tightened. Therefore, BST got active at KASE, trying to use every opportunity of making profit on exchange operations. In addition, BST have exhausted their stocks of cash dollars by working with the population, and after January 6 they closed their short positions shifting to the purchase and replenishment of dollars in their assets. Demand escalation at KASE in some ways was due to the situation in Russia, where exchange rate of the dollar grew faster than here. There is no direct relationship between our markets, they are only tied by export and import flows. However, understanding this influence, our banks took some measures to protect their assets from devaluation by buying dollars. After an analysis of the Russian situation some experts believe fast fall of the rouble at MICEX was also caused by an accumulated demand during the holidays. And when rouble grew 19.77 kopecks at United trade session on January 13, this point of view was more than convincing. Low activity of the exporters stimulated the growth in the exchange rate of the dollar at KASE during reporting period. Predictions of some dealers regarding large volume of dollar supplies at the Exchange did not come true in the first decade of January. BST were only buying dollars. In IRBIS analysts' opinion, absence of supply at KASE was caused by a ratio of the prices for the American currency at the Exchange to that in interbank market. Based on dealers' quotations in REUTERS information system, during the whole week dollars could be sold at more higher prices in interbank market. Therefore, sellers of dollars were inclined to work out of the Exchange. This proportion of the prices for the U.S. dollars in some way was due to an appearance of the first market-maker of the American currency on trade floors of KASE in the new year. With the significant benefit in commission fees, the market-maker was interested in buying dollars at the Exchange, where the price is lower. In the afternoon this currency was sold in interbank market at a higher price to other banks, which did not want to buy USD at KASE avoiding the commission. In Exchange specialists' opinion, such "side effect" in market-makers activities is temporary, and other major banks may apply for such a status soon. In that case, speculative potential of "Exchange - interbank" arbitrage will decrease and the situation will normalize. Results of analysis of the trades in this period show the most important factors that had an impact on growth of dollar were accumulated demand of corporate clients of the banks and increase in purchasing power of the population, which boosted the demand for cash USD. Activity of the trades was maximum at the beginning of the week and trade volumes began to decrease by the end of the week. It implies that accumulated demand is getting satisfied and the market is restoring its stocks with cash dollars. No organized demand of the BST has been observed at the trades. Demand monopolization existed, and it was high due to the activity of the market- maker (see above) - other banks were buying dollars from it after the trades. In this situation the head bank of the country had to regulate the exchange rate actively, however, this regulation was market driven and not only in currency sector. During the period the National Bank was offering short term notes by increasing their yields somewhat. Notes were popular, and thanks to them 5.7 bln of free tenge was withdrawn from the circulation since the beginning of the year, decreasing the pressure of tenge in currency sector. Significant activation of the head bank in the secondary market for SS was also observed, where the National Bank made some price compromises by selling papers of the Ministry of finance at KASE. In currency market the National Bank maintained gradual growth in the exchange rate of the dollar by selling USD, and preventing unjustified exchange rate fluctuations and trying to attain relative decrease in the price of USD in interbank market to attract dollar supplies to the trade floor of the exchange. IRBIS analysts do not exclude that devaluation rate of the National Bank was maintained considering the situation in Russia. In general, the situation in the currency market of the country was under the control of the National Bank. Results of analysis of the trades in this period show some discharge of the situation by the end of the week. However, it is still early to talk about balanced market. All demand for cash dollars of the population, which stimulates growth in USD rate of the Exchange, should be satisfied. More likely, dollar will continue its growth at KASE in the next week. At least, in the first half of the week. Exchange rate growth rate may be lower than previously achieved.