Dollar purchased to curb inflation in Cambodia
CAMBODIA’S central bank has purchased US$479.4 million worth of cash during the first half of this year to convert to riel, using one of the few tools the National Bank of Cambodia (NBC) has to stabilise the value of the local currency and inject it into circulation, according to the regulator’s latest report.
The report said the NBC purchased US dollars 65 times during the first six months of 2017 with an average exchange rate of 4,040 riel per $1. While the value of the local currency has remained stable, the report released on Saturday noted that 60 per cent of the additional riel in circulation was absorbed by commercial banks.
Chea Serey, director general of the NBC, said that strong demand from commercial banks reflected an overall confidence in the use of the local currency. However, she noted that the riel’s market share was still dwarfed by a heavy dollarised economy.
“Even though the use of riel is increasing noticeably from previous years, due to the enlargement of our economy, the US dollar still has the biggest share,” she said on Saturday. “Currently, the circulation of US dollar is still at about 83 per cent of the currency used in our economy.”
She added that with the central bank having extremely limited options to guide its own monetary policy, the purchase of dollars was needed to maintain a stable exchange rate and to minimise the impacts of inflation.
The central bank predicted that the demand for riel will increase by approximately 18 per cent for the rest of 2017 compared to the first half of this year. The value and usage of the riel flows on a cyclical basis, the report noted, rising sharply in March due to the purchase of agricultural products during the harvest season and for tax payments. The riel then begins to decline in April before rebounding again in November and December when rice cultivation picks up.
The report added that the overall balance of payment in US dollar stood at a surplus of 6.5 percent of the annual GDP for the first half of this year, compared to 5.7 percent for the same time last year. Cambodia currently has a foreign exchange reserve of $7.7 billion which could cover up to six months worth of imports.
Mey Kalyan, senior adviser to the Supreme National Economic Council of Cambodia, said that the stable exchange rate and manageable rate of inflation allows for greater use of the local currency, giving the central bank more control over monetary policy.
“A stable exchange rate and inflation rate are indicators that show improvements in the efforts to de-dollarise the economy,” he said.
