In September, we observed a weakening of the tenge exchange rate against a basket of foreign currencies. So the exchange rate of tenge against the US dollar weakened by 3.2% in September and amounted to 474.5 tenge per dollar. Such dynamics of the tenge exchange rate are due to the adjustment of the balance of supply and demand due to the withdrawal of internal support factors.
The first factor was the abolition of the requirement for mandatory conversion of a part of the foreign exchange earnings of quasi-public sector entities (previously, the share of mandatory sales was 30%), which provided over 10% of the currency supply only on the exchange market. Such volumes of currency supply smoothed the fluctuations of tenge in response to the deterioration of fundamental foreign economic factors. The continued positive dynamics of economic growth and a decrease in price pressure at a high base rate contributed to a decrease in the devaluation household expectations, as well as an increase in interest in tenge assets. Since the beginning of the year, we have observed a flow from foreign currency to tenge deposits, as well as relatively low volumes of net purchases of currency in exchange offices. This policy stimulated the growth of the attractiveness of investments for non-residents in government securities. The combination of the above factors led to a long-term strong position of the tenge - it fluctuated at the level of 440-455 tenge per dollar.

The change in the rhetoric of the National Bank that followed at the end of August was a signal of the transition to a policy of easing monetary conditions, where the first step was to reduce the base rate to 16.5% after an 8-month maintenance of the base rate at the same level (16.75%) caused a market reaction. There was significant uncertainty regarding the further policy of the regulator and, accordingly, the profitability of tenge assets. At the same time, inflation risks remain elevated and the government continues to increase budget expenditures, which keeps the economy overheated. The dollar is a safe harbour in the face of growing uncertainty. Given the global strengthening of the dollar's position, economic agents decided to gradually withdraw from risky assets, which is why the observed weakening of the tenge is connected.

The reduction of a significant share of supply with an increase in demand for foreign currency in the context of an increase in imports also served as one of the factors of the weakening of the tenge. As a result, the exchange rate of tenge to the US dollar dropped to the level of 482 tenge per dollar last week, which is the minimum for the national currency exchange rate since the beginning of the year.

Considering the end of the 3rd quarter and the beginning of the next Jusan Analytics team forecast round, we have updated our outlooks for the tenge exchange rate. We expect greater volatility and the tenge exchange rate in the range of 472-489 tenge per dollar by the end of the year (weakening by 1.9% - 5.7% since the beginning of the year and +0.6% and -3.6% compared to the end of September).