Kyat resumes slide against US dollar

Kyat resumes slide against US dollar

By Aye Thida Kyaw   |   Monday, 01 July 2013

Central bank says speculators aim to weaken the currency and pledges to intervene if the market gets 'out of hand'

Licensed currency-exchange services last week began restricting the sale of US dollars as the kyat resumed its slide against the greenback, bankers said.

With the kyat falling faster on the black market, licensed traders said they were unable to maintain profitability at the rate the central bank allows them to charge.

"We lose money if the difference between the official and black market rates is K20-K30 to the dollar," Daw Theingi Nwe, general manager of Co-operative Bank, said on June 26.

"We are only selling large sums to customers who urgently need dollars and can show documentation to prove it," she added.

Currency traders said they began applying restrictions – including a requirement that buyers show proof of need, such as export documents – on June 24, the first day of trading for the week.

Licensed currency traders are tied to the daily rate set by the central bank and can only trade at plus or minus 0.8 percent of it.

U Zaw Lin Htut, senior general manager of Kanbawza Bank's international banking division, said the bank was unable to keep up with the black market.

"A lot of customers just buy from us and sell to others, but we don't want to encourage market speculation," U Zaw Lin Htut said.

On June 26, the central bank's rate was K959 to the dollar. Licensed traders were buying dollars for K959 and selling them for K966.

On the black market, however, the greenback was trading for up to K1000.

After strengthening slightly in early June, the kyat has weakened by about 0.1 or 0.2pc a day at central bank auctions, although the fall has been more pronounced on the open market.

A black market trader at Kyauktada market said the US dollar had shot up as the international price of gold fell – from US$1300 to $1275 a tical – and the dollar strengthened against a number of other major currencies.

He said informal money changers in Yangon had to follow gold and currency trading trends set in nearby Shwebonthar Street in Pabedan township, where brokers make large deals in gold, currencies and gems.

The deals are based on data from Bloomberg's financial website.

An official from the central bank's foreign exchange management department said the bank monitors the black market daily.

"The information that we have collected suggests that a group of people are working to weaken the kyat, but we stand ready to intervene if the situation gets out of hand," the

official said.

Sean Turnell, an economics professor at Macquarie University in Sydney, Australia, said "exchange rate volatility can be expected in transition scenarios such as in Myanmar".

"I would not be at all surprised to hear that speculators are active. An extra dimension in Myanmar of course is the fact that a formal foreign exchange market was long suppressed, so we have little real idea what its 'equilibrium' rate might be (around which daily movements could be expected to fluctuate)."

"Many exchange rates are volatile at the moment, including Australia's," he said, adding that he expects the kyat to "settle near and around" 1000 to the US dollar.

"Foreign exchange markets often 'anchor' over psychologically comforting benchmarks like this," Mr Turnell said.

Hong Kong Financial Secretary John Tsang said global factors are also at play.

"When the world is in crisis investors seek safety," he said on June 27.

Funds are also flowing back to the United States in expectation of higher interest rates on long-term government bonds there, Mr Tsang said.

Myanmar will "have to get used to volatility", he added.

Source: http://www.news.myanmaronlinecentre.com/2013/07/04/kyat-resumes-slide-against-us-dollar/