(Adds central bank comment)
ALMATY, March 16 (Reuters) - The Kazakh tenge dropped 6.6% against the dollar in the interbank market on Monday after the central bank said it would stick to a free float regime following a sharp fall in the price of oil, the country’s main export.
“Maintaining the exchange rate at the previous levels would inevitably have led to a significant decline of the country’s gold and foreign currency reserves, (increased) dollarisation, liquidity crisis and further deterioration of the situation in the economy,” the bank quoted its deputy governor Aliya Moldabekova as saying in a statement.
The tenge hit an all-time low of 438.57 per dollar during the day and was headed for its biggest daily drop in more than four years.
On the Kazakh Stock Exchange, the tenge’s decline briefly reached 7.6%, and trading went into the Frankfurt auction mode, which automatically kicks in on movements bigger than 1.5%.
Kazakhstan’s central bank kept its policy rate unchanged at 12.0% on Monday and indicated it would reduce its involvement in the foreign exchange market after intervening last week to smoothen the tenge’s fall.
The bank said there was now a higher risk of inflation exceeding the 6% target range ceiling this year due the impact of the coronavirus, and that it had slashed its outlook for the average 2020 Brent crude price to $35 per barrel from $60.
President Kassym-Jomart Tokayev, who addressed the nation on state television on Monday, made no mention of the exchange rate developments, but said that the government would ensure prices on food staples and other necessities do not jump.
In a decree published later on Monday, Tokayev gave himself emergency powers on matters ranging from foreign trade and taxes to setting maximum prices of important goods and services. (Reporting by Olzhas Auyezov; Editing by Christian Schmollinger, Sam Holmes and Alex Richardson)