Facing early elections, Kazakhstan has been steadfast in refusing to devalue the tenge but the dangers of an over-valued currency are already evident and may ultimately force official action. Kazakhstan's biggest trade partners, notably Russia, have seen their currencies fall sharply against the dollar in the past year. On the weekend, fellow ex-Soviet energy exporter Azerbaijan became the latest to devalue.
But the Kazakh central bank, which last devalued its currency in February 2014, has refused to follow suit, and as a result, the tenge trades below 3 per rouble versus 5 in mid-2014. (link.reuters.com/mud24w)
And its real effective exchange rate -- used to determine if a currency is undervalued or over-valued -- is some 11 percent above its long-term average, this graphic based on central bank data shows: link.reuters.com/nyb24w
Kazakh media have reported that people living in areas near Russia have been swarming across the border to snap up goods made cheap by the rouble's sharp depreciation. A range of sectors, from cars to food, are suffering from a surge in imports from Russia, according to local newspapers.
Unsurprisingly, pressure for a devaluation is growing from Kazakh entrepreneurs.
"Taking targeted steps to protect business in connection with the collapse of the Russian rouble is question number one now," Ablai Myrzakhmetov, head of Kazakhstan's National Chamber of Entrepreneurs, told a news conference.
He urged the government to hold off power tariff hikes to enable local producers to compete with Russian imports.
The reason for the central bank stance, many reckon, is the possibility that President Nursultan Nazarbayev will call early elections that will extend his 25-year rule.
Central bank governor Kairat Kelimbetov recently assured Nazarbayev that the bank had enough reserves "not to allow sharp currency fluctuations". There was no need to move the tenge trading band of 170-188 per dollar if prices for crude, Kazakhstan's main export, stay around $50 per barrel, he said.
Instead, authorities are believed to be spending billions of dollars to ease pressure on the tenge, using currency swaps with commercial banks to flatter the current $101 billion reserve figures.
More than $10 billion have been spent in this way to support the tenge, according to calculations by Asyl Invest, a Kazakh investment firm. Analysts have been critical.
"It appears perverse why a commodity economy like Kazakhstan, so tied to the Russian economy, would resist allowing the tenge to weaken, and waste so many reserves in the process, and especially when all around are allowing more competitive currencies," Standard Bank said in a note.
Standard Bank said Azerbaijan's example showed Kazakh resistance would ultimately be futile. Bank of America/Merrill Lynch also predicts a 30 percent devaluation this year.
Markets -- and Kazakh businesses -- seem to agree. Non-deliverable forwards (NDFs), used for betting on future exchange rate swings, price in devaluation of around 16 percent to the dollar in the next three months.
Devaluation expectations in themselves can be immensely damaging. Tenge liquidity in the economy has dried up as banks are now lending mainly in dollars due to devaluation fears, Myrzakhmetov said, calling this a "screaming problem" for mid-sized businesses.
The risk is of a frantic rush by individuals to convert tenge savings into dollars, BofA analysts said.
"There is a general expectation of devaluation in households and businesses alike, and both believe that it is better to hold savings in dollars," said Oraz Jandosov, a former central bank head who now runs the Center for Economic Analysis think tank.
Kazakh dollar debt could also come under pressure as weak oil prices and an over-valued currency pressure the current account, BofA/Merrill analysts warned.
Kazakhstan allowed the tenge to weaken in 1999 after the rouble tumbled, oil prices hit $10 a barrel and Russia defaulted on debt. It devalued again in 2009 when the rouble and oil prices fell during the global crisis.
This time, the picture is muddied by politics, with the ruling party and parliament appealing to Nazarbayev to hold an early election. Few doubt that the 74-year-old former steel worker will be re-elected for another term: he has no strong rivals.
And while his government will not risk "socially sensitive" steps such as devaluation for now, that may change after the vote, Kazakh investment company Halyk Finance says.
"Once the date of the election has been announced, expectations of the beginning of exchange rate liberalisation will focus on the month after that date," Halyk told clients. (Additional reporting by Mariya Gordeyeva in Almaty and Raushan Nurshayeva in Astana; Graphic by Vincent Flasseur; Editing by Ruth Pitchford)