Central Bank Closes Exchange Gap, Further Weakening Kyat
By Kyaw Hsu Mon 16 July 2015
RANGOON — Following a move this week by the Central Bank of Myanmar to bring its official currency exchange rate in line with the kyat’s price per dollar on the black market, illicit currency traders have seen fit to push the unofficial rate further skyward and commodity prices have followed suit, according to Win Myint, chairman of the Myanmar Petroleum Importers Association.
On Monday, the Central Bank raised the official exchange rate from 1,115 kyats per US dollar to 1,200 kyats, an acknowledgement that its insistence for months on keeping the kyat at around 1,100 per dollar was not reflective of the local currency’s actual strength. The gap between the Central Bank rate and its black market alternative had caused currency exchange counters to stop selling dollars, with many only accepting the greenback in exchange for offering customers kyats.
But the move for now appears only to have made acquiring dollars even more expensive, in turn driving up commodity prices. The black market exchange rate reached 1,280 kyats per dollar on Tuesday and Wednesday, while the official Central Bank rate stood at 1,216 kyats per dollar.
Exchange rate volatility and the gap between the official and black market rates have seen importers face dollar shortages and attendant difficulty transacting business. Licensed private banks found themselves unwilling or unable to meet dollar demand.
In the third week of June, the Central Bank announced that importers of petroleum and cooking oil would be granted unrestricted sales of foreign currencies from private banks at the official rate, at the time about 1,110 kyats per dollar.
“Now, because of the new rule, other importers can also buy as much as they need from banks paying 1,200 per dollar, so it’s OK but fuel prices have increased at least 10 percent,” Win Myint told The Irrawaddy.
About 75 companies are members of the Myanmar Petroleum Importers Association. According to association data, about 150,000 to 200,000 tons of diesel and 70,000 tons of petroleum are imported monthly.
“On Wednesday, the Central Bank’s rate was 1,210 kyats, so the official rate we are buying at from banks has increased at least 100 kyats, so fuel prices have increased too,” he said. “For example, the price of one liter of 92 RON petroleum went from 670 kyats to 750 kyats today.”
“As long as importers are paying more money, ultimately it will reach directly to consumers,” he added.
State-run daily The Mirror reported on Thursday that the Central Bank has attempted to sell more US dollars through foreign currency auctions in an effort to lessen reliance on black market currency trading.
The report said that if the government had continued to ignore the gap in rates, public trust in the Central Bank would fall. The decision, according to The Mirror, was made in consultation with the International Monetary Fund, local and foreign experts, multiple government ministries and officials from the President’s Office.
In a statement on Monday, the Central Bank noted that the gap between the official exchange rate and the black market rate was only 0.1 percent in 2014, but from early 2015 to late June, the gap had grown to 3.1 percent.
While it remains to be seen how responsive to the black market currency trade the Central Bank will be going forward, Soe Tun, chairman of the Myanmar Car Importers Association, said one thing was clear: As long as trade and budget deficits persisted, the kyat was not likely to bounce back from its recent weak performance against the dollar.
“The Central Bank’s new policy is good, but we don’t see any signal that the exchange rate will go down,” he said.