Myanmar revamps monetary policy

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Myanmar’s central bank building in the capital Naypyitaw

To prepare for large foreign direct investment inflows, Myanmar plans to implement an independent monetary policy in the first half of next year. Cash transactions, which have been largely done on the “informal” money market so far, should be shifted  to banks to give authorities more control about money movements in and out of the country and to establish transparent payment channels for investors.

The Myanmar government, which has introduced a floating exchange rate of the local currency, the kyat, to the US dollar earlier this year, said it wants to eliminate all unofficial foreign exchange trades to keep the rate to the dollar stable and make sure that the inflow of foreign funds will not destabilise the exchange rate.

The Myanmar central bank has set a daily rate of 818 kyat per US dollar in April 2012, a rate near the then black-market level as opposed to the former official exchange rate of 6.51 kyat to the US dollar. The new rate  is theoretically allowed to float as much as 0.8 per cent of either side of the reference rate.

The black market rate has dropped from 1280 kyat to the US dollar in 2007 to around 800 per US dollar in 2011. However, as of September 17, 2012,  the Myanmar kyat has weakened to 867 to 1 US dollar on foreign exchange boards, far above the fixed trading band, making it the worst performer among Southeast Asian currencies in that period.

The new monetary policy will now let authorised banks now handle about $2 million per day in foreign-exchange transactions, compared with about $5 million in informal markets, according to the International Monetary Fund, which is advising Myanmar on its monetary policy.

While exporters are pushing for a dollar to fetch between 900 and 1,000 kyat to keep their goods competitive, the central bank will also take into consideration the views of importers and the rural population, the IMF said. While this is expected to strengthen the kyat, it will, on the other hand, increase manpower costs for foreign companies which earn US dollar but pay salaries in kyat.

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Reading Time: 2 minutes

Myanmar’s central bank building in the capital Naypyitaw

To prepare for large foreign direct investment inflows, Myanmar plans to implement an independent monetary policy in the first half of next year. Cash transactions, which have been largely done on the “informal” money market so far, should be shifted  to banks to give authorities more control about money movements in and out of the country and to establish transparent payment channels for investors.

Reading Time: 2 minutes

Myanmar’s central bank building in the capital Naypyitaw

To prepare for large foreign direct investment inflows, Myanmar plans to implement an independent monetary policy in the first half of next year. Cash transactions, which have been largely done on the “informal” money market so far, should be shifted  to banks to give authorities more control about money movements in and out of the country and to establish transparent payment channels for investors.

The Myanmar government, which has introduced a floating exchange rate of the local currency, the kyat, to the US dollar earlier this year, said it wants to eliminate all unofficial foreign exchange trades to keep the rate to the dollar stable and make sure that the inflow of foreign funds will not destabilise the exchange rate.

The Myanmar central bank has set a daily rate of 818 kyat per US dollar in April 2012, a rate near the then black-market level as opposed to the former official exchange rate of 6.51 kyat to the US dollar. The new rate  is theoretically allowed to float as much as 0.8 per cent of either side of the reference rate.

The black market rate has dropped from 1280 kyat to the US dollar in 2007 to around 800 per US dollar in 2011. However, as of September 17, 2012,  the Myanmar kyat has weakened to 867 to 1 US dollar on foreign exchange boards, far above the fixed trading band, making it the worst performer among Southeast Asian currencies in that period.

The new monetary policy will now let authorised banks now handle about $2 million per day in foreign-exchange transactions, compared with about $5 million in informal markets, according to the International Monetary Fund, which is advising Myanmar on its monetary policy.

While exporters are pushing for a dollar to fetch between 900 and 1,000 kyat to keep their goods competitive, the central bank will also take into consideration the views of importers and the rural population, the IMF said. While this is expected to strengthen the kyat, it will, on the other hand, increase manpower costs for foreign companies which earn US dollar but pay salaries in kyat.

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