Unstable kyat may hit economy

Some local banks like KBZ and most foreign-exchange counters have suspended dollar buying since Monday. Nearly all LED boards displaying daily exchange rates have been turned off. 

To date, the Central Bank of Myanmar (CBM) has not taken any action, leading to uncertainty over when the situation will return to normal after fresh global dumping of dollars yesterday on bets the US Federal Reserve could be done with raising interest rates.

Aung Thein, vice president of the Myanmar Industries Association and managing director of Nibban Electronics, said dollar depreciation had not has a big impact on local industries yet. Exporters know perfectly well how to overcome such obstacles. But he also highlighted the importance of exchange-rate stability in manufacturing and trading.

According to KBZ, one of the top Myanmar banks, the dollar/kyat rate moved down one way this month. The dollar buying and selling rates on February 1 were 1,285 and 1,299. On February 8, the rates were 1,250 and 1,262. On February 10 when the counters were closed, the bank set the buying and selling rates at 1,221 and 1,230, a deviation of 5.35 and 5.5 per cent respectively from the January 11 rates. The situation was in stark contrast to last year, when the dollar spike raised concerns about prices and inflation in Myanmar.

To put this in perspective, the Thai baht strengthened to 35.2 yesterday against the US dollar, gaining 2.1 per cent from the end-2015 level.

“We bought dollars until last Friday,” said Phyo Phyo Wai, a KBZ bank staff member. “But the greenback seemed to weaken further day by day. Now, a dollar is bought with just over 1,210. Can you imagine how much we [would have lost] if we bought a lot of dollars last week?”

KBZ Bank is not the only financial institution suffering. Aya Bank, CB Bank, Asia Green Development Bank, and United Amara Bank also suspended dollar buying. Now, only local banks and authorised moneychangers can buy and sell the US dollar, as well as the euro and Singapore dollar. 

The kyat did appreciate against all three currencies in the past few weeks, but the magnitude of appreciation against US dollar was the most. 

 

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Than Lwin, senior consultant to KBZ Bank and former deputy governor of the CBM, attributed the kyat’s rise to excessive expectation that foreign direct investment would surge under the government led by the National League for Democracy (NLD). 

“Holding dollars, people in general want to sell them, expecting the dollar to weaken further in the months to come,” he said. 

George Soe Win, senior bank and investment consultant at JLC Group of Companies and General Myanmar Group of Companies, noted that this ran against Myanmar’s economic fundamentals, as there is no significant change in trade figures. 

“It is all about speculation. It depends largely on failure to strike a balance between supply and demand,” he said, casting doubt that some third-party groups may dump dollars into the market, which could have boosted the dollar supply. 

Pe Myint, former managing director of CB Bank, speculated that dollar depreciation could be linked with opium production. In the early months of each year, illegal income generated from opium production can flow into the market. Until this is probed, companies involved in export and import could hold off on transactions.

Maung Aung, senior adviser to the Commerce Ministry, attributed the situation to low demand for dollars. He said the NLD had yet to release economic policies while dollar demand among importers remained low. 

All of them urged for urgent actions by the central bank, to ensure foreign-exchange stability. George Soe Win and Maung Aung said unstable rates would hurt exporters whose manufacturing costs remain high. 

“The central bank should set clearer policies and take necessary measures to maintain the stability. It needs to handle such a situation tactically. It needs to intervene in the market to stabilise the exchange rate,” Than Lwin said.