Kyat steadily declines against other currencies

 

Staying at 1,016 per US dollar for five days since November 10, the official rate fell to 1,029 on November 17. On November 18, the rate plunged to 1,040 before sinking further to 1,048 on November 19, a new low since the managed float system was introduced in April 2012. 

Sources said that black market rate is now 1,070-1,075 per dollar.

At the current level, the kyat has depreciated by 7.4 per cent from the $/Ks 976 rate at the end of 2013.

Compared to the $/824 rate at the end of 2011, the currency has depreciated by as much as 27.2 per cent. 

The Myanmar kyat also fell in relation to the Singapore dollar, Thai baht and Japanese yen. 

Myanmar’s trade deficit is cited as the primary cause of the faltering kyat. Myanmar’s import was valued at above US$8 billion in the first six months of this fiscal year, while the export volume amounted to approximately $5 billion, leaving a trade deficit of $3 billion.

“This is the reason of the dollar price hike. There may also be speculation in the currency market,” said one local businessman who asked not to be named.

According to the Myanmar Citizen Investment Law, the Myanmar Investment Commission adopts a lenient policy on the source of investment capital of investors awarded investment licenses. Investors were only required to submit bank account records. 

As sources of income were not precisely scrutinised, this raises speculation that some illicit money – generated by illegal drug, gem or timber trade – may be channeled into the financial system. The money could be converted to US dollar to finance the import of items necessary for their investment projects. Some local businessmen believed that this is a reason why the demand for dollar spikes. 

According to the International Monetary Fund, by the end of March 2014, CBM’s foreign reserves amounted US$4.5 billion, covering nearly 3 months of prospective imports. Due to the kyat depreciation, there is an increasing call that it releases some dollar to ease the demand.

“The CBM said that it could not control the exchange rate. Some time last year, the central bank sold some dollar,” economist Soe Thein said.

“It’s not easy to tell when the exchange rate will be stabilised. Intervention is good for the short term if the exchange rate is high due to other factors. But nothing can be done if the exchange rate is influenced by macroeconomic factors and long-term imbalances. If the imports stay high for too long, the kyat will surely further decline.”

He noted that the government needed to draw more foreign investment, to attract more dollar into the economy. 

Many argue that the government should be more transparent about trade and budget deficits.

“It is now difficult to determine the market situation. There may be a sharp fall in the exchange rate. But the central bank should step in when there were rumours that would boosted dollar value. This should help stabilise the exchange rate,” said Than Lwin, a senior adviser at Kanbawza Bank.