Central Bank on the look-out for dollar hoarding by banks and firms

The government has urged the Central Bank of Myanmar to make sure commercial banks are not involved in US dollar speculation, according to reports in government media yesterday. The kyat started 2015 at K1025 per US dollar according to the official reference rate, but has plunged 21 percent in local trading this year. Yesterday it was listed at K1240 per dollar. State newspaper Myanmar Ahlin reported yesterday that Central Bank, government and commercial bank officials met on July 21 to discuss currency issues. For most of the year, the Central Bank’s daily reference rate had not kept up with the parallel market price, though on July 13 it changed its stance and said daily market auctions would determine the exchange rate. Central Bank governor U Kyaw Kyaw Maung said that commercial banks must trade within 0.8 percent of the official reference rate, and banks will be inspected to relieve instability, according to the report. Officials have cited speculation as leading to the kyat’s decline. A Central Bank official told The Myanmar Times yesterday the lender of last resort is planning to check import licences, money transfers, and returns of certain traders and banks to look for those withdrawing large quantities of dollars for use in speculation. It is also working on policy responses to the depreciating kyat, including launching deposit auctions and selling treasury bills to suck up excess liquidity in the market. “We are seriously discussing the weakening kyat,” he said. “We mainly focus on inflationary pressure [from the depreciation] that is important to get back investor confidence and restart FDI flow to the country.” The government had discussed an inflation target at or below 5pc in the coming years, though a final decision had not been made, he said. The Central Bank currently lists inflation at 5.48pc, though other commentators have pegged it recently nearer to 8pc. The official also said there is more to come on a previously announced plan to reduce dollarisation in the economy, starting with retail businesses like hotels, restaurants and jewellery shops. “We can’t raise confidence in the kyat if we don’t reduce dollarisation,” he said. Other measures have been introduced, such as cap on the amount of US dollars that can be withdrawn at once from a bank account. Still, some commentators are worried the kyat’s slide may continue in the future. U Ye Min Oo, former managing director of Asia Green Development Bank, posted on Facebook that the Central Bank needs to discuss concerns that the kyat could depreciate to K1500 a dollar. Others have welcomed the decline, noting it may boost Myanmar’s exports.