Thursday, August 17, 2017

Exchange rate slide has traders worried

The kyat depreciated about 2.8 percent last week against the US dollar, marking another week of slides as the greenback gains strength around the world.

Source: Adapted from industry website xe.comSource: Adapted from industry website

The Central Bank of Myanmar’s November 21 reference rate was K1040 a dollar, after starting the week at K1016.

While in the short term the depreciation will support Myanmar’s exports, making them more attractive to foreign buyers using the US dollar, some say if the slide continues it could spell trouble for the longer term.

Businessman U Hnin Oo said that while the products he sells, such as fish, are now more actively in demand because of the weakening kyat, in the longer term he will need to import foreign products to run his businesses.

“They’re discussing the issue in parliament, and the central bank and financial institutions are saying it’s not a panic situation, but I’m still worried,” he said.

Imported goods, generally denominated in US dollars, are also set to become more expensive.

U Than Oo, managing director of Best Battery Trading, said his products have not yet increased in price because much of his stock was imported ahead of the more recent kyat depreciation against the dollar.

However, if he needs to buy more stock soon, the higher costs – from requiring more kyat to buy foreign goods denominated in US dollars – will likely be passed on to customers.

U Soe Tun, managing director of vehicle importer Farmer Auto, said prices of his vehicles will change as the exchange rate fluctuates.

The kyat is also likely to continue depreciating in the near term, he added.

“The market is not showing signs of slowing down, and there’s lots of demand for dollars, so the domestic situation supports the dollar’s growth,” he said.

U Soe Tun added a strengthening dollar also negatively affects prices for assets like gold and property

While the kyat’s value against the US dollar is largely decided outside Myanmar’s borders, there are some areas locally where the currency can be influenced.

Ministry of Commerce director U Win Myint said that while there is currently a large trade deficit, this could change as more petroleum production comes on line.

Myanmar has faced a widening trade deficit, but more petroleum production and increased exports spurred by a lower local currency could help cut the gap.

“Exporters will be happy [with the kyat depreciation], but importers will have to raise prices to not lose,” said U Win Myint. “The consumers may suffer, and we may need to adjust some policies.”