As trade and other businesses wind down in the run-up to the Chinese New Year festival, and sentiment about the political transition improves, the kyat has strengthened in value to a three-month high against the US dollar.
The value of Myanmar’s currency has fallen more than 25 percent to the dollar over the past year, but since January has strengthened by 2pc, to K1280 yesterday according to the Central Bank rate. Money changers in Yangon were buying dollars yesterday at K1266.
Myanmar’s fast-widening trade and current account deficits, a stronger US dollar and devastating flooding last year combined to place downward pressure on the currency. Flooding also caused the price of basic commodities to soar and inflation to rise well into the double digits.
Sources said import transactions such as payment for automobiles had slowed, and demand for US dollars had fallen since last week. Many of Myanmar’s largest trade partners including China, Hong Kong, Singapore and Taiwan are preparing for the week-long holiday.
Exports across Myanmar’s land border with Yunnan province, particularly watermelons, are at an annual high as China stocks up on food.
Confidence in the kyat has been boosted by a relatively smooth political transition, to a government that is expected to benefit the economy and welcome foreign investment, financial industry sources said.
The Central Bank tried to prop up the weakening currency last year, and took a number of measures aimed at boosting confidence, but was finally unable to stem its decline.
U Mya Than, chair of Yangon Foreign Exchange Market Committee, said the Central Bank does not have sufficient foreign currency reserves to intervene effectively.
“The Central Bank cannot control the market as they can’t offer enough [US dollars] to the banks,” he said. In its daily auctions, the monetary authority can sell up to US$1 million while banks place orders for $14 million to $15 million, he said.
In yesterday’s auction, nine banks bid for a total of $12 million at K1280 and the Central Bank sold $200,000, leaving $11.8 million of unsatisfied demand, according to Central Bank records. Banks typically carry out their own surveys to ascertain the kyat’s market value before bidding each day, said U Mya Than.
“While the Central Bank has not been able to intervene in the market, its recent policies seem to have helped counter currency depreciation,” he said. A weaker US dollar since the end of last month has also helped.
In particular, two recent policies may have helped support the currency, said a Yangon-based economist.
The first is that exporters and importers must now use banks for all foreign currency transactions. The rule, introduced in December, is aimed at paving the way for a functioning interbank currency market.
The government also amended its 2012 Foreign Exchange Management Law in December to prevent exporters from selling foreign currency. The amendment also requires lenders with foreign exchange licences to check that exporters with foreign currency accounts deposit export earnings in their bank account. Any discrepancies must be reported to the Central Bank.
In the past, exporters and importers typically exchanged foreign currency directly by transferring money between bank accounts – often held with state lenders.
The second change is that Nostro accounts – held in a foreign country and denominated in the currency of that country – can now be used for making import payments on behalf of clients. This reduces the demand for dollars within Myanmar.
Source: Myanmar Times
