Riel to slow rising prices

[PHNOM PENH POST]

THE Cambodian riel has appreciated against the greenback over the last week as demand increases following the harvest season, which experts say could help tame price inflation.

Ministry of Commerce statistics show the riel traded at 3,997 against the US dollar on Phnom Penh markets yesterday, from 4,035 a week ago and above 4,270 in the summer of 2010.

Ly Hour Exchange has recently seen a rapid strengthening of the local currency against the dollar over the last week, according to its owner Sieng Lim.

“We have a lack of riel circulation in the market. This is because of the increased demand from the harvest season, leading businesspeople to use local currency to buy rice paddy or other agricultural products,” she said.

But the harvest season was seen as the secondary reason behind the riel’s recent increase by Suzuki Hiroshi Chief Executive Officer of the Business Research Institute for Cambodia.

The US dollar had been weakening against major international currencies, particularly the euro and the yuan, he said.

“Second is the seasonal reason – at the time of the Khmer New Year, rural regions need much more riel,” he said.

The appreciation of the riel will increase Cambodia’s purchasing power, offsetting some rising prices stemming partly from an increase in the international price of oil, he added.

“This could provide a positive effect to the inflationary situation in Cambodia,” he said.

The Consumer Price Index showed domestic prices increased by 0.7 percent in February month on month, driven partly by rising fuel costs.

Cambodia’s main exports, meanwhile, generally pay workers and materials in US dollars, meaning a rising riel would have little impact, said Suzuki Hiroshi.

ACLEDA Bank Chairman Chea Sok said Cambodia uses the dollar for imported goods, which are then often sold locally in riel.

Government requirements to pay taxes in riel also contributed to increases in the riel’s value, he said.

Suzuki Hiroshi said that the National Bank of Cambodia had committed to keeping the riel’s price relatively stable, generally in a band between 4,000 and 4,200 riel.

The current situation was not critical, but the NBC should intervene “if rate fluctuations are too drastic,” he said.

NBC Director General Nguon Sokha could not be reached  for comment yesterday.