[PHNOM PENH POST]
CAMBODIA’S central bank is looking to tighten monetary policy to slow an
inflation rate that could hit 8 to 9 percent this year, National Bank
of Cambodia Director General and Spokeswoman Nguon Sokha said yesterday.
Increases
in commodity prices and petroleum has led to rising prices around the
globe, and may cause further price inflation in Cambodia this year. The
NBC is committed to maintaining price stability and Cambodia is not
alone in the region in considering a tightened monetary policy, she
said.
“The NBC may need to take action given current price
inflation,” she said. “At the moment, we are making efforts to maintain
stability in the value of the riel, and we are pleased with the current
performance of the exchange rate.”
Given Cambodia’s high degree
of dollarisation – by most estimates more than 90 percent of the
Kingdom’s currency – the central bank has relatively few policy
instruments to use and the effectiveness of some its monetary policy
options are limited.
The NBC will hold a meeting this month to
consider whether to raise the reserve requirement rate for commercial
banks from 12 per cent on deposits in foreign currencies to 16 per cent
or higher, she said.
A reserve requirement is the amount of money a commercial bank must hold, rather than lending out.
“I
don’t know for sure if we’re going to implement the policy. We’re
considering final approval from the monetary policy committee meeting
set for the middle of this month,” Nguon Sokha said.
“If we do nothing, the press-ure of inflation will become worse and worse, destabilising our exchange rate.”
The NBC’s prediction of eight to nine per cent inflation this year is higher than many other observers’ forecasts.
Last
month, Minister of Economy and Finance Keat Chhon upped his prediction
to 5.5 per cent inflation for 2011, while the World Bank has predicted
five per cent.
The International Monetary Fund currently
predicted inflation of about 6.5 per cent for Cambodia in 2011, IMF
resident representative Faisal Ahmed wrote yesterday.
“A tighter monetary policy, sooner rather than later, can help reduce the inflationary pressure,'' Ahmed said.
“In fact, as observed in many countries, price stability is one of the key ingredients for fin-ancial development.”
Vietnam’s
consumer prices increased 22.16 per cent in July from a year earlier,
compared with a growth of 20.82 per cent in June, according to
statistics released from Hanoi’s General Statistics Office last week.
Business
Research Insitute for Cambodia chief executive Suzuki Hiroshi wrote
that Cambodia’s inflation rates were not particularly high compared with
those of countries such as Vietnam, adding that he supposed it was too
early to talk about monetary tightening in Cambodia.
“It is very
difficult for the NBC to take policy measures for fine tuning because of
the highly dollarised economy,” Hiroshi wrote yesterday.
Diversifying
and improving exports was the most important step the Cambodian economy
could take to mitigate external shocks, he said.
“The government
has to diversify the industry by inviting other manufacturing
indust-ries to Cambodia. Strengthening competitiveness is also a big
challenge.”
The Ministry of Commerce’s daily statistics show prices for foodstuffs and petroleum in particular have risen this year.
Paddy
is up by about two per cent since the start of the year, though pork
has increased by 35 per cent and fish is up by 26 per cent, the
statistics show.
Nguon Sokha downplayed concerns that an increase
to reserve requirement rate would negatively impact the domestic
financial industry, as the NBC had maintained a rate of 16 per cent in
2008, before the financial crisis.
“In our banking system,
there’s a lot of liquidity – the increase to the reserve requirement
will not have a big impact,” she said.
ACLEDA Bank vice-president
So Phonnary said she had not received concrete information of an
increase, but added the NBC’s measures would make the industry stronger.
“We
don’t have any problem with our bank [to meet an increase to the
reserve requirement ratio]. But I think it will impact on smaller banks
by limiting their liquidity for daily operations,” she said.
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