Myanmar kyat plunges to new lows
The general strength of the US dollar and poorly managed currency control by the Myanmar central bank has led to another plunge of the country’s currency, the kyat. Last week, the kyat reached a record low of 1,108.71 to 1 US dollar, a depreciation of more than 35 per cent since the central bank floated the currency in April 2012 at a rate of 818 kyat to the US dollar.
And this rate is just the official rate published by the central bank. The unofficial street rate has fallen below 1,200 and small money changers in Yangon are even offering a weaker rate since there is obviously a shortage of US dollars in the country.
Banks complain that the central bank does not sell enough dollars to them. Meant to sell $10 million per day, it is only releasing a quarter of that, bankers say.
This also means that businesses do not get enough US dollars for cross-border trades and are forced to supply themselves using private money changers, driving the kyat rate up even more. With few people and small to medium companies using bank accounts, cash has still great significance in Myanmar’s economy.
The demand for dollars is also driven by the country’s rapid consumption, especially of manufactured goods, as it recovers from decades of seclusion by the military regime and isolation by sanctions. According to Myanmar’s commerce ministry’s data, Myanmar is likely to suffer a record trade deficit of $5 billion for the fiscal year 2014-15 which ended on March 31.
The World Bank estimates inflation in Myanmar at 7 per cent, and has called for it not to be allowed to exceed 10 per cent. The Asian Development Bank’s fiscal year 2015 figure is 8.4 per cent. Rising inflation is a concern, particularly as those with the lowest incomes are hurt the most.
Downward pressure on the kyat is likely to increase. Gas is one of Myanmar’s major exports, and in many cases the sales price is indexed to gas prices with a one-year lag, so the full impact of falling global gas prices has not yet been felt in Myanmar.
Adding to that is the fact that illegal sales of timber, gems and drugs are often made in kyat, with the proceeds converted into US dollars. Speculation does also weaken the currency.
On the other hand, a weaker kyat means that Myanmar’s exports become more competitive, a positive outcome for local exporters of commodities such as rice, pulses and beans, marine products and garments. Some even argue that for Myanmar’s non-resource export sectors to recover to their competitiveness level in 2010, the kyat would still need an additional 5 to 10 per cent depreciation.
The general strength of the US dollar and poorly managed currency control by the Myanmar central bank has led to another plunge of the country's currency, the kyat. Last week, the kyat reached a record low of 1,108.71 to 1 US dollar, a depreciation of more than 35 per cent since the central bank floated the currency in April 2012 at a rate of 818 kyat to the US dollar. And this rate is just the official rate published by the central bank. The unofficial street rate has fallen below 1,200 and small money changers in Yangon are even offering...
The general strength of the US dollar and poorly managed currency control by the Myanmar central bank has led to another plunge of the country’s currency, the kyat. Last week, the kyat reached a record low of 1,108.71 to 1 US dollar, a depreciation of more than 35 per cent since the central bank floated the currency in April 2012 at a rate of 818 kyat to the US dollar.
And this rate is just the official rate published by the central bank. The unofficial street rate has fallen below 1,200 and small money changers in Yangon are even offering a weaker rate since there is obviously a shortage of US dollars in the country.
Banks complain that the central bank does not sell enough dollars to them. Meant to sell $10 million per day, it is only releasing a quarter of that, bankers say.
This also means that businesses do not get enough US dollars for cross-border trades and are forced to supply themselves using private money changers, driving the kyat rate up even more. With few people and small to medium companies using bank accounts, cash has still great significance in Myanmar’s economy.
The demand for dollars is also driven by the country’s rapid consumption, especially of manufactured goods, as it recovers from decades of seclusion by the military regime and isolation by sanctions. According to Myanmar’s commerce ministry’s data, Myanmar is likely to suffer a record trade deficit of $5 billion for the fiscal year 2014-15 which ended on March 31.
The World Bank estimates inflation in Myanmar at 7 per cent, and has called for it not to be allowed to exceed 10 per cent. The Asian Development Bank’s fiscal year 2015 figure is 8.4 per cent. Rising inflation is a concern, particularly as those with the lowest incomes are hurt the most.
Downward pressure on the kyat is likely to increase. Gas is one of Myanmar’s major exports, and in many cases the sales price is indexed to gas prices with a one-year lag, so the full impact of falling global gas prices has not yet been felt in Myanmar.
Adding to that is the fact that illegal sales of timber, gems and drugs are often made in kyat, with the proceeds converted into US dollars. Speculation does also weaken the currency.
On the other hand, a weaker kyat means that Myanmar’s exports become more competitive, a positive outcome for local exporters of commodities such as rice, pulses and beans, marine products and garments. Some even argue that for Myanmar’s non-resource export sectors to recover to their competitiveness level in 2010, the kyat would still need an additional 5 to 10 per cent depreciation.
