Central Bank to Take Action Against Manipulation of the Exchange Rate

By Kyaw Hsu Mon 4 October 2016

RANGOON — Burma’s Central Bank announced on Monday that it would take action against those manipulating the dollar exchange rate and “playing the market” as the kyat experiences a significant decrease in value.

The dollar exchange rate on the black market recently reached around 1,280 kyats per dollar, while the Central Bank’s exchange rate reached 1,260 kyats as of October 4. The amount has been significantly increasing since mid-September.

“Some say the increased dollar exchange rate is due to private banks’ reduced call deposit rate, but I can say that is not true: it happened because of market players,” a spokesperson from the Central Bank told The Irrawaddy.

“If some players start rumors and play the market based on incorrect news to push the dollar rate, we will take action against them by working with the authorities. It’s a police case,” he said.

In the Central Bank’s announcement on Monday, they also reiterated current deposit rates and highlighted their impacts on the banking sector. There are four types of deposits available in private banks—saving, fixed, current, and call deposits. Saving deposits and fixed deposits typically make up around 80 percent of total bank deposits; current deposits account for just 13 percent and do not earn interest. Call deposits—used for investment funds and newly introduced in Burma—make up an even smaller amount at 7 percent.

The minimum interest rate on saving deposits and fixed deposits has been set at 8 percent by the Central Bank, which does not set rates on call deposits. According to the announcement, a lower interest rate on call deposits would not have a large impact; few people cite this as a reason for withdrawing call deposit savings.

According to this rationale, the bank argued, it is incorrect to attribute an increased exchange rate to a mass withdrawal of savings and exchange to dollars due to low interest rates.

U Soe Thein, senior executive director of Asia Green Development Bank said that he agreed with the Central Bank’s reasoning, pointing out that call deposit rates were only cut by some banks and would not have a large impact on the dollar exchange rate.

“Some private banks tried to persuade their clients by paying high call deposit interest rates, but now they can’t. This does not directly impact all industry and exchange rate increases,” U Soe Thein said.

“There are many things that could cause those dollar exchange rate increases in the market, because there is a high demand,” he said.

U Min Zaw, a rice trader, said it is important that the Central Bank find a way to control the recent increase in the dollar exchange rate as it is having an impact on local businesses.

“If the Central Bank can control this rate with some international loans, the exchange rate may decline again,” he said.