"Some People Might Get Nervous": What Lies Ahead for the Tenge and Investors in Kazakh Bonds

The period of the tenge’s appreciation turned out to be longer than many had expected. The National Bank’s latest rate cut raises questions about the prospects for the carry trade, and a shift in sentiment among these investors could become an additional source of pressure on the national currency, as Pavel Pakhomov, director of the analytics department at the international trading platform ITS, argues in a column for Oninvest at .

The next rate-setting meeting will take place on December 4. And the regulator has made it clear that there may be no further rate cuts this year. It may sound paradoxical, but I would view this more as confirmation of the downward trend, if I were to describe it with the phrase “everything is fine, everything is under control.”

A 0.5 percentage point decline from a baseline of around 16% is quite small. And even if we see a pause in December, it would be premature to speak of a real end to such a gradual trend.

The National Bank has consistently signaled that it is ready to cut rates, but it is proceeding cautiously and is prepared to pause. This approach has held steady throughout the year. It is unlikely that we should expect a truly sharp cut in the future. However, there is a high probability that inflation will drop to 8% next year, and we will see a rate of 14% or 13%.

It is clear that, in the base-case scenario, a rate cut reduces the attractiveness of tenge-denominated instruments. The tenge appears to have already reached its ceiling, and further depreciation is likely. But even that has not happened yet: market conditions are favorable, oil and uranium prices are high, and since early October, the exchange rate has remained within the range of 447–457 tenge per dollar.

Foreign investors’ holdings of government securities have already exceeded 2.5 trillion tenge—a significant amount from the perspective of the local market (non-residents hold nearly 9% of government securities—Oninvest). A sharp reversal in demand and a shift toward conversion on such a scale could prove very painful for the tenge.

However, the $5–6 billion brought into the country by foreigners is quite insignificant from a global perspective—even when accounting for speculative investors. Those who came for this profit knew what they were getting into. They are interested in the high real returns on tenge-denominated instruments. In 2026, they reaped windfall profits thanks to the strengthening of the Kazakhstani currency, but this factor will likely fade away. And even so, a 10% difference in yield compared to U.S. securities is a very significant amount.

Every investor has their own inflation rate and their own rate of return. We see a real interest rate of about 6%, which means we can confidently speak of a yield range of 5–8%. Even if the tenge depreciates by 10% over the course of a year—at interest rates of 14–18%—this investment will still not result in a loss. There’s also a margin relative to inflation: 18% at the start of the year versus the current 15.75%—the difference is small. Still, these are very high rates. In fact, there’s more talk of rate cuts than actual cuts.

When discussing their plans, all central banks leave room for maneuver; no one in the world is making long-term forecasts right now. The nearest date—after which significant changes may follow—is not far off. Let’s see what happens after November 3, when the U.S. midterm elections take place. A Democratic victory—especially if they secure a majority in both the House of Representatives and the Senate—could sharply curtail the U.S. administration’s activity regarding Iran—and vice versa. And any change in the situation in the Strait of Hormuz could also radically alter oil prices.

Kazakhstan is a commodity-based economy, and changes in commodity prices affect the tenge exchange rate. However, unless there is a rush of demand for foreign currency from the public, the tenge’s depreciation will be very slow: we will gradually return to the level seen at the end of last year. At the same time, despite this nominal depreciation, the tenge will remain a relatively strong currency.

In the case of the exchange rate, bond yields depend on the entry point—but, to reiterate, from a purely technical standpoint, the trend still points toward a strengthening tenge. If it reverses, the margin of safety can be estimated at approximately 20%—around 540–550 tenge per dollar. As for the current situation, I don’t see any likelihood of the exchange rate moving beyond 500 tenge anytime soon. If this psychological threshold is crossed, some people might get nervous, but it’s unlikely to be a widespread reaction.

This article was AI-translated and verified by a human editor