Surging kyat closes foreign exchange desks

 

Local banks suspended foreign currency exchange services yesterday as the kyat surged in value against the dollar, with financial industry sources variously pointing the finger at political speculation, market rumours and a lack of clear Central Bank policy.

The kyat strengthened to K1248 against the dollar yesterday, according to the Central Bank’s rate, after ending January at K1294.

Moves among money changers were even more severe, with one shop in downtown Yangon quoting K1190 to the dollar yesterday, and another K1210. The same foreign exchange agents were buying dollars at over K1300 at the start of this year.

The sharp moves are causing headaches for banks, several of which opted yesterday to stop exchanging dollars into kyat. Staff at downtown branches of Kanbawza Bank and AYA Bank told The Myanmar Times yesterday that the foreign exchange desks at all their branches were closed on orders from head office, and could not say when they would be reopened.

KBZ vice president U Than Lwin said his firm’s foreign exchange services were suspended rather than closed, and that this was due to a shortage of kyat. The bank would be following events, he said, but could not comment on when the suspension would end.

A staff member at a downtown branch of CB Bank said his foreign exchange desk had been open on-and-off throughout the day as the exchange rate between kyat and dollars shifted.

“When a customer came into the bank and asked to sell or buy dollars we called head office to ask for the price,” he said. “But the wait was too long and so no-one has exchanged money today.”

Myanmar Oriental Bank’s chair U Mya Than said his firm would continue to change money for tourists, but would not be changing large amounts. Asia Green Development Bank’s deputy managing director U Soe Thein said ADG was not interested in accepting more US dollars in foreign currency transactions, and that this was widespread across the banking sector.

“The banks are not willing to take more [currency] risk,” he said.

Commercial bank officials were unanimous in deeming the situation extraordinary, but there was less agreement over what was causing the strengthening kyat.

U Mya Than said he had questioned his staff, who had suggested Chinese New Year had lowered demand for dollars.

One Yangon-based official at an international financial institution also suggested the drop in imports from China during the holiday could be pushing down demand for dollars.

But historical data from the Central Bank shows little sign of any fluctuations ahead of earlier Chinese New Year breaks.

The exchange rate was K1025 to the dollar at the end of January 2015, and had only moved to K1206 when Chinese New Year arrived on February 19 of that year, according to Central Bank data. The previous year tells a similar story, when the exchange rate was the same on January 2 and January 31, the day of Chinese New Year.

Bankers also pointed out that Myanmar’s currency is not alone in performing well against the dollar, although the 3.55 percent shift in the kyat-dollar exchange since the end of January eclipses most moves elsewhere in Asia.

The Thai baht strengthened 0.83pc against the dollar over the same period and the Singapore dollar 2.09pc. The Japanese yen, however, has strengthened 4.7pc against the dollar during the same period, according to the Bank of Japan.

Both Chinese New Year and the broader weakening of the dollar against regional currencies are potential factors, bankers said. But sources at several commercial banks said rumours are also likely playing a role.

“The Myanmar market is covered with rumours,” said one, who suggested people were “betting on politics” by changing dollars in large amounts in the expectation that the new government will liberalise the economy.

U Mya Than said he had heard rumours of people selling out of offshore dollar positions, again in expectation that the outlook for Myanmar was becoming more favourable. But he doubted that this was driving the strengthening kyat.

KBZ’s U Than Lwin said that there was still demand for dollars across the financial sector, but that banks would not dare take on more dollars while the market was expecting further drops.

One local economist pointed out that if commercial banks were expecting the kyat to appreciate further, they would be offering their dollars to the Central Bank at auction. But Central Bank auction results show no signs of commercial banks submitting offers for dollars, only bids.

“That means that the banks do not believe in a downward trend for the dollar against the kyat,” he said.

AGD Bank’s U Soe Thein also felt there was little reason for the kyat to appreciate further.

“We still have the trade deficit,” he said. “I think it’s that the banks are holding too much foreign currency, and when you hold more foreign currency you need more kyat and they don’t have enough.”

A clearer Central Bank policy for foreign exchange would help, he said. Central Bank policy makes it difficult for banks to use dollars held physically, rather than electronically, for import financing or interbank transfers, he said.

For this reason, commercial banks would be willing to take on more dollars in their nostro accounts – held in a foreign country and denominated in the currency of that country – but not in physical form at a branch, U Soe Thein said.

“There’s also the issue of the foreign exchange [that] we and other banks hold with the Central Bank, Myanma Investment and Commercial Bank and Myanma Foreign Trade Bank,” he said. “There’s no clear policy about how we can use those dollars. A clearer idea of central policy guidelines would help the interbank foreign exchange market.”

U Win Thaw, head of the Central Bank’s Foreign Exchange Management Department, said the Central Bank was “monitoring and looking at the situation” but could not discuss the currency movements.

 

Source: Myanmar Times

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