Inflation spikes over volatile exchange rate
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.
Prices of imported fruits are rising on the back of the higher exchange rate.