Experts urge central bank rethink as kyat slides By Aye Thida Kyaw | Monday, 27 May 2013 Monetary experts urged Myanmar’s central bank to set an exchange rate that balances the need to generate exports and maintain affordable imports, as the national currency continued its month-long slide against the US dollar. Exporters and importers are closely monitoring the fluctuating rate between the kyat and the US dollar, while the IMF is urging the Central Bank of Myanmar to build up its reserves to provide a buffer against external shocks. Photo: Aye Zaw Myo The Central Bank of Myanmar’s daily exchange rate, which is determined through foreign currency auctions with domestic banks, was K946 to the dollar on May 23, while official money changers were buying dollars for K945 and informal changers were offering K953-955. On May 25, however, the kyat fell to 1000 for one dollar on the black market. In official trade the kyat fell 2.3 percent against the dollar in the week to May 23, from 925 on May 17. Matt Davies, deputy division chief for the International Monetary Fund’s Asia and Pacific department, told The Myanmar Times that exchange rate fluctuations have the potential to greatly impact on the nation’s trade sector. He said on the sidelines of an IMF press conference that Myanmar needs to find a balance between allowing the US dollar to appreciate and making the nation’s exports cheaper abroad, while keeping the price of imports affordable as the country grows. Myanmar has made great strides in liberalising its foreign exchange regime since President U Thein Sein took office, including allowing new private banks to open, giving permission for banks to open official money exchange counters, installing automatic teller machines and legalising remittances from abroad, Mr Davies said. In April 2012, the central bank began a managed float of the kyat by holding daily currency auctions. The rate set by the bank is then used as a benchmark for private banks and private exchange counters, which are allowed to change money within 0.8pc of the central bank’s rate. Mr Davies said the central bank is working to minimise exchange rate fluctuations without targeting a specific rate. However, it has also supplemented its foreign currency reserves by buying dollars and other foreign currencies, which is weakening the kyat. He advised the central bank to build up its reserves so it has a buffer against external shocks. Equipping the central bank with the tools to conduct domestic monetary policy is important for delivering the stability necessary for sustained economic growth, he added. Mr Davies said inflation remains moderate at present but there are pressures, including from money growth, real estate prices and wage increases. An official from the central bank’s foreign exchange management department said the dollar is appreciating against the kyat because private banks are bidding higher at the daily currency auctions. “We can’t say the appreciation is too great … there are many factors that are coinciding to form a trend,” he said. When the central bank started the managed float of the kyat, the dollar bought K818 but in the past 13 months it has appreciated by more than 15pc. The official said the daily rate has seen changes up to a maximum of 1pc, adding that fluctuations would be larger if the central bank did not hold the auctions. “This is not just a problem in Myanmar; we also have to deal with changes in the international economy. But we have to avoid fuelling an inflationary situation,” he said. Even though the central bank has not been made independent from the Ministry of Finance and Revenue – and will not be until after the Central Bank Law is passed by parliament and signed into law by the president – it can act to change monetary policy, he said. A finance officer at a joint-venture between foreign and local partners said the swift fluctuations created occasional problems with customers. “We have to negotiate with the Internal Revenue Department and customers when the exchange rate changes too much in a month,” she said. She added that the variance between the rates offered at official money exchange counters and in the informal market – as much as K10 to the dollar on May 22 – also drew complaints from customers. Economist U Khine Htun said the dollar is strengthening against the Japanese yen, the British pound, the Australian dollar and the kyat. He added that another factor causing the dollar to appreciate is the start, in March, of the withdrawal of Foreign Exchange Certificates (FEC) from the market. He said businesspeople only want dollars now, adding that traders say they hope to see a stable exchange rate of about K1000. Myanmar must not allow imports to become too expensive because there is a huge need to import materials to build infrastructure projects such as special economic zones in Yangon, Dawei and Kyaukpyu, U Khine Htun stressed. The appreciation of the dollar benefits exporters – chiefly those selling natural gas, agricultural goods and fisheries products – but hurts importers of fertiliser, cement, diesel and the cheapest cooking oils. “It encourages the export first-policy, but the immediate fluctuations are harming the whole economy and destabilising the market,” U Khine Htun warned. “The central bank has not intervened effectively in the monetary market yet. It is acting more like a referee as currencies are traded by banks.”
Posted on: Sat, 01 Jun 2013 02:26:54 +0000
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