AFP/Getty Images The Myanmar kyat’s recent declines aren’t a cause for concern as it was previously overvalued, but appropriate policy tools are necessary to maintain confidence in the currency, an International Monetary Fund official said. In an interview, IMF Deputy Managing Director Naoyuki Shinohara said it is positive that the kyat’s level is now being determined by market forces, and that growing imports are a significant driver behind the kyat’s depreciation, which was exaggerated by its low trading volumes. “I don’t think we should worry very much about short-term movements in the exchange rate. What is important is that the exchange rate is not artificially determined at an unsustainable level,” Mr. Shinohara said on the sidelines of the World Economic Forum on East Asia late Thursday. “It seems that [the kyat] came from an overvalued level to a more or less appropriate level,” he said, adding that he doesn’t expect the falls to persist. In April last year, Myanmar’s central bank moved its currency to a managed-float system, and unified the official and unofficial exchange rates that had existed previously. Since the start of 2013, the currency has depreciated around 10% against the dollar, and now stands at 941 kyat to the U.S. currency. Mr. Shinohara said while inflation in Myanmar seems under control, it is natural to expect price pressures to increase, with wages and house prices already rising, and a growing number of international players looking at investing in the country. “Inflation is the worst enemy for confidence in the local currency…That is why we think the introduction of appropriate monetary policy tools is important to maintain confidence in the local currency,” he said. Mr. Shinohara said the IMF is collaborating with Myanmar’s authorities to develop suitable monetary policy instruments. Since the country has no interbank market, it cannot currently use interest rates to adjust liquidity conditions in the way that many other countries do. The IMF and local officials are working on creating a treasury bill market that could be used to absorb or increase liquidity in the banking sector, but that is still at a very early stage, with work to prepare regulation for treasury auctions due to start in September, he said. A vital step in ensuring such policies are effective is giving the central bank independence from the government, with Myanmar’s new central bank law due to be approved by Parliament in coming weeks. While the language seems to have been amended substantially by Parliament from earlier drafts, “it is our strong impression that the final central bank law will be equipped with enough language to ensure budgetary and operational autonomy for the central bank,” Mr. Shinohara said. Implementation will be another big issue and the IMF is ready to work with the central bank on that, he said.
Posted on: Mon, 01 Jul 2013 08:02:12 +0000
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