A quiet ride turns tumultuous for forex

The kyat is set to depreciate about 6 percent against the US dollar in 2014, unless there’s another significant change in value before the end of the year.

The first three-quarters of the year were quiet for the kyat. Experts say a sudden depreciation begun in October is due not just to the domestic economy but also the relative strength of the US dollar against most international currencies.

The kyat started 2014 at K986 to a dollar in January. It appreciated to K972 by mid-year, though in October it began weakening until it hit lows of K1080 a dollar in December.

Central Bank of Myanmar deputy governor U Set Aung has said it is not only Myanmar’s currency that’s been showing weakness. While the kyat has depreciated about 6pc this year, the Thai baht is down 9pc, Indonesia’s rupiah has weakened by 28pc and India’s rupee depreciated by 15pc.

“We are experiencing this kind of drifting currency depreciation for just a couple of months, it’s very bad situation,” he said at an event on December 12.

“But the level of depreciation in the country compared to [other countries] is better,” he said.

The fact that Myanmar has not completely liberalised its capital accounts has helped shield the domestic economy against possible currency outflows. In addition, consumers have been protected by large declines in food prices, notably rice, as well as oil prices.

U Set Aung said that even though the currency has depreciated, there has not been too much inflation, partly as commodity prices declined.

Another central bank official said the kyat had seemed relatively stable until the last quarter of 2014, when the depreciation run began. Businesses that rely on imports, such as supermarkets, were often forced to raise their prices by 5 to 10pc.

“There have been some commodity prices that have increased on their own in the market, and a small amount of increase is acceptable,” he said. “However, people are just blaming the dollar’s value rather than actually analysing data.”

The official, who requested anonymity as he is not allowed to speak to the media, added the Central Bank is confident it can handle the situation through to early next year.

Yangon Foreign Exchange Market Committee chair U Mya Than said restrictions mean the informal market for currency is often much more active than the formal market.

The rates offered by informal traders usually follow a band of plus or minus 0.8 points of the Central Bank’s daily reference rate.

The committee was set up last year by 18 commercial banks that are licensed to deal in foreign exchange. State-owned banks are often slow to respond to different demands for foreign currency, resulting in a shortage at commercial banks, he said.

Given the interbank market is not particularly active, commercial banks often rely on the Central Bank’s daily currency auctions to obtain foreign currency.

One trader with an account at a state-owned bank said there is active shopping for the best exchange rates.

“Nobody wants to change money at banks with low rates,” he said.

“Easing some of the restrictions may enable more foreign currency to flow to banks or force state-owned banks to get involved in the inter-bank market, relieving the need of the Central Bank to sell dollars every day to the banks.”

State banks along with other state-owned firms have come under increased pressure to reform.


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