In­fla­tion spikes over volatile ex­change rate

The Myanmar Times - - Front Page - HTIN LYNN AUNG htin­lyn­naung@mm­

Over the past two months, food and com­mod­ity prices on the lo­cal mar­ket have risen sig­nif­i­cantly as a re­sult of the higher dol­lar-to-kyat ex­change rate.

MYAN­MAR res­i­dents are be­gin­ning to feel the pinch from the de­pre­ci­at­ing Myan­mar kyat.

Over the past two months, food and com­mod­ity prices in the lo­cal mar­ket, es­pe­cially those of fu­els, elec­tronic goods, tech­ni­cal de­vices and im­ports, have risen sig­nif­i­cantly as a re­sult of higher dol­lar to kyat ex­change rate.

Since July 2, the ref­er­ence ex­change rate set by the Cen­tral Bank of Myan­mar (CBM) has risen by more than 9 per­cent to K1,542 per dol­lar on Septem­ber 11. Con­se­quently, the price of petrol, which is heav­ily im­ported, has also risen by 10pc-15pc.

It now costs K 955-980 for a liter of 92 RON from K 865-880 in July, K 1005-1030 per liter of RON 95 from K 915-930 and K 995- 1020 per liter of diesel from K 850-890 be­fore.

“The value of the kyat is de­pre­ci­at­ing more than nor­mal, so the prices of ma­jor im­ports such as fuel and medicines are get­ting higher. That means prices lo­cally will in­crease too,” said econ­o­mist Dr Aung Ko Ko.

“This is hap­pen­ing glob­ally be­cause of the ris­ing dol­lar value but the im­pact is much worse for im­port-de­pen­dent coun­tries like Myan­mar. A so­lu­tion is nec­es­sary for this. Oth­er­wise, many prob­lems will arise when con­duct­ing trade,” said U Nay Lin Zin, a lo­cal trader. Higher in­fla­tion In fact, in­fla­tion was al­ready creep­ing up since June, around a month after the dol­lar’s value be­gan to ap­pre­ci­ate. Ac­cord­ing to the Cen­tral Sta­tis­ti­cal Or­ga­ni­za­tion (CSO), the an­nual in­fla­tion rate of Myan­mar rose from 6.45pc in June to 7.56pc in July.

The CSO’s Core Con­sumer Price In­dexis is mainly based on the prices of fuel oils and food prod­ucts.

Ac­cord­ing to its re­port, the prices of ba­sic food­stuff such as rice, meat and fish, cook­ing oils and veg­eta­bles in July was al­ready 1.69pc higher than prices in June. The prices petrol and diesel as well as taxi fees and ve­hi­cle ser­vic­ing charges have also been on the rise since then.

The CSO noted that the main rea­son for ris­ing in­fla­tion is due to the high dol­lar ex­change rate driv­ing up the price of im­ports.

In April, the gov­ern­ment had also raised the salaries of its em­ploy­ees by 20pc. The ad­di­tional money en­ter­ing the econ­omy had also re­sulted in higher in­fla­tion. “If a lot of money is cir­cu­lated within the do­mes­tic econ­omy, it could cause in­fla­tion,” said Dr Naing Ko Ko.

How­ever, the gov­ern­ment re­quires a min­i­mum of three months to mon­i­tor in­fla­tion be­fore en­act­ing poli­cies to con­trol it, Dr Naing Ko Ko said. “Pol­i­cy­mak­ers need a cer­tain amount of time to mon­i­tor and re­search be­fore en­act­ing poli­cies so in­fla­tion can­not be re­solved im­me­di­ately,” he said. CBM so­lu­tion As a short term so­lu­tion to the volatile ex­change rate, the CBM has pumped mil­lions of dol­lars into the econ­omy since July. It also ar­ranged for dol­lar-de­nom­i­nated loans while us­ing the kyat as col­lat­eral.

On Au­gust 19, the CBM also launched the first swap fa­cil­ity be­tween it­self and lo­cal banks. Un­der the CBM’s new swap fa­cil­ity, pri­vate banks will de­posit lo­cal cur­rency at the Cen­tral Bank in ex­change for the equiv­a­lent value in dol­lars ei­ther after 14 days or one month at a prea­greed in­ter­est rate.

Still, the ex­change rate prob­lem can­not be solved solely with the swap method and more needs to be done to sta­bilise the kyat and con­trol in­fla­tion, said Dr Aung Ko Ko.

On that front, the CBM has also re­moved its 0.8pc trad­ing band above or be­low the ref­er­ence rate within which banks and money chang­ers are al­lowed to con­duct for­eign ex­change trans­ac­tions, es­sen­tially al­low­ing the ex­change rate to be de­ter­mined by the mar­ket forces of sup­ply and de­mand.

As the au­thor­i­ties hurry to im­ple­ment mea­sures they deem fit to man­age the econ­omy, res­i­dents may well be faced with higher costs of liv­ing in the months to come.

Photo: Zarni Phyo

Prices of im­ported fruits are ris­ing on the back of the higher ex­change rate.

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