TOPIC OF THE WEEK: The Kyrgyz som looks vulnerable, but the trade may be early rather than wrong
The Kyrgyz som is being held on an exceptionally tight leash. The central bank has sold almost US$1.5bn through nine interventions in 2026—already far above the full-year total for 2025—yet the USDKGS has barely moved from 87.45. At this point, the policy looks increasingly like defense of a level rather than ordinary volatility smoothing.
The good news is that this does not yet look like a classic balance-of-payments or confidence crisis. Reserves remain comfortable, remittances and gold continue to support the external position, and the headline current-account deficit appears less alarming once large errors and omissions are considered. The underlying problem is not a shortage of money, but too much domestic demand chasing imports. Kyrgyzstan’s economy is certainly overheating. Double-digit growth, rapid credit expansion, public investment and construction are driving strong demand for imported machinery, materials and consumer goods. In an extremely shallow FX market, even a handful of large transactions can produce outsized pressure. For example, the average 2026 intervention has been almost twelve times normal daily interbank turnover.
The NBK’s reluctance to allow depreciation is understandable. Inflation is already well above target, exchange-rate pass-through is high, and even a modest move could quickly raise fuel, food and medicine prices. But by suppressing the adjustment, the authorities are effectively converting an inflation problem into a reserve-flow problem—and making the eventual exit from the quasi-peg more difficult. Ultimately, gradual depreciation would probably be less damaging than maintaining a rigid level until reserves or external conditions force a sharper move.
The market-clearing exchange rate is almost certainly weaker than 87.45, but a disorderly devaluation remains a tail risk rather than the base case. A modest depreciation looks increasingly likely over the next 12 months, yet the NBK still has the firepower and political will to delay it. Ultimately, gradual weakening would probably be less damaging than maintaining a rigid level until reserves or external conditions force a sharper move. The direction looks right, but the trade still looks early.
Now read on...
Register to sample a report