Burma

Myanmar Central Bank Cuts Rates, Business Circle Says Move Falls Short

By The Irrawaddy 13 March 2020

YANGON—The Central Bank of Myanmar has announced a 0.5 percent reduction to interest rates, in what the bank says is a move to spur economic growth. But bankers and businesses have said that the move doesn’t go far enough to help the country’s declining economy.

The bank announced on Thursday that it will reduce its interest rate from 10 percent to 9.5 percent, effective April 1.

According to the directive, the minimum bank deposit rate will be lowered from 8 percent to 7.5 percent, while the maximum lending rate will be lowered from 13 to 12.5 percent for collateralized loans and from 16 to 15.5 percent for non-collateralized loans.

Bankers and economists have generally welcomed the move but said the adjustment is unlikely to help improve the declining economy.

The Union of Myanmar Federation of Chambers of Commerce and Industry (UMFCCI) said that the 0.5 percent reduction will not work as Myanmar still has the highest interest rate among ASEAN countries.

“The 0.5 percent is like feeding a handful of sesame to an elephant. This is the critique from the majority of businesspeople,” said UMFCCI Vice-President Dr. Maung Maung Lay. “In other countries, the maximum interest rate is 2 percent. The 0.5 percent reduction does not help businesspeople in Myanmar, where the interest rate is 13 percent.”

“The adjustment is just on paper and offers no benefits at all in reality. You can’t say the reduction aims to save struggling businesspeople,” he added.

Myanmar’s economy is declining significantly as the clothing, tourism and manufacturing industries are suffering from the coronavirus outbreak, according to the UMFCCI.

“The Central Bank has given the excuse that it can’t make a further reduction because of its concerns over possible inflation, so it has resisted reduction. As a result, businesspeople are sinking deeper and deeper into the quagmire,” said Dr. Maung Maung Lay.

According to the Central Bank, the annual inflation rate in Myanmar stands at 8.8 percent.

“The reduction is good. But the amount is small,” said U Than Lwin, a senior advisor at Kanbawza Bank who served as the vice-governor of the Central Bank.

“It is advisable to make reductions over time. If [the Central Bank] can’t make a single large reduction, it should reduce bit by bit. It is not good to make a small reduction and then keep it unchanged for four to five years. In foreign countries, [the interest rate] is reduced three to four times per year,” he added.

“The lower the interest rate is, the better. Other countries make large reductions when their economies are in decline. The interest rate is just around 1 percent in Singapore. The Central Bank should test how much further it can reduce [the rate],” he suggested.

“It can make further reductions if the market responds well. This is the international practice. [The Central Bank] can also increase the rate again if the reduction is too large,” he said.

The Central Bank announced in February that it was considering reducing the interest rate but said it will proceed with caution due to inflation concerns.

“Banks can stand up to a 2 percent [reduction],” banking expert U Ye Min Oo told The Irrawaddy. “The Central Bank of Myanmar will not think like private banks. It has many other factors to consider, so it decided to reduce by 0.5 percent.”

Central banks around the world have also eased rates in order to limit the impact of the coronavirus outbreak on their economies. On Wednesday, the Bank of England announced an emergency cut from 0.75 percent to 0.25 percent—the lowest in its history.

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