Myanmar's volatile foreign exchange rate dropping

Myanmar's volatile foreign exchange rate has started to drop in this week although it had hit the highest record early this month.

The U.S. dollar exchange rate with Myanmar's local currency kyat, which started to increase again in August, broke a new record in the second week of this month since 2007.

The exchange rate reached as high as 1,440 kyats per U.S. dollar at the black market while the reference rate of the Central Bank of Myanmar (CBM) was 1,375 kyats per dollar over the week.

The local investors said that the sudden huge ascending was accelerated during this period by such policy change of government in vehicle import sector. The government announced adoption of new policy in next year for car import.

Hence, the importers rushed to get the import permit under the current policy, resulting high demand of U.S. dollars in the local market.

But it has been descending again in these days as the government suspended the import permit till the end of this year. Another factor is that the market is slow in these days due to the new year holidays.

Therefore, according to market survey on Friday, 1 U.S. dollar was sold for 1,365 kyats but bought for 1,358 kyats at the official rate, while 1,363 kyats per U.S. dollars for selling and 1,362 for buying at the market rate.

Meanwhile, the reference rate of the Central Bank of Myanmar (CBM) was 1,365 kyats per dollar.

Local economists urged the government to find the short-term and long-term solutions for the exchange rate stability in coordination between the CBM and related ministries and private sector.

The local giant non-governmental organization representing the private sector, Union of Myanmar Chamber of Commerce and Industry (UMFCCI) has submitting a report to the government in order to contribute for exchange rate stability.

The report said that the CBM should change its policies to suit with the problem and make attempt to crack down the informal market.

It also contributed to reduce the dollar demand of the country and enhance the less cash society.

Moreover, the Ministry of Commerce was also urged to encourage the export and production supply chain.

The officials of CBM met with those of the Ministry of Commerce and the Ministry of Planning and Finance Tuesday to seek the ways of stabilizing the volatile U.S. dollar exchange market.

They discussed about plans to check the export earning inflow into country, to revise the current reference exchange rate system and to reduce smuggling and to make sure the foreign currency inflow from migrant workers in an effort to meet local high U.S. dollar demand caused by huge trade deficit, inflation and budget deficit.

The CBM liberalized the foreign exchange market in 2012, adopting managed float system. The CBM also conducted U.S. dollar auction to local banks every day and has established an inter-bank foreign exchange market in order to support the market.

However, some local private banks refused to sell dollars for local demand but buy in only to avoid the risk of losing interest so the invisible hands of black market are taking advantages of market instability with speculations.

The Deputy Governor said at the parliament that as an attempt to stabilize the exchange rate, the CBM is working to adjust the difference between exchange rates to around 2 percent.

Myanmar has a total of 5.49 billion U.S. dollars of state-owned foreign reserve, 87 percent of which is in the hand of the CBM as of March in 2015.

The CBM prescribed that local banks and currency exchange counters can play the rate 0.8 percent higher or lower from the CBM's reference rate. However, the market indicates the country's huge demand for U.S. dollar.

The CBM conducted U.S. dollar auction to local banks every day and has established an inter-bank foreign exchange market in order to support the market.

However, some local private banks refuse to sell dollars for local demand and do buying only to avoid the risk of losing interest while the invisible hands of black market are taking advantages of market instability with speculations.

The CBM has warned the local private banks against making more speculations in local foreign exchange market in October. Enditem