No change to reserve requirement

[PHNOM PENH POST]

CAMBODIA has decided not to increase its reserve requirement for banks to tackle inflation, National Bank of Cambodia Director General and spokeswoman Nguon Sokha said yesterday.

“We decided to keep our existing reserve requirement policy. It won’t change at all,” she said, following a two-day meeting of the Monetary Policy Committee members that ended yesterday. The meeting was led by NBC Governor Chea Chanto.

The government’s estimated 6.5 percent average inflation for 2011 matched IMF projections, Nguon Sokha said, and will remain far below the 20 to 23 percent inflation estimated for neighbouring Vietnam.

“This level is acceptable. It’s not high compared to the inflationary rate in some countries in the region, which require the use of the policy.”

The Kingdom’s reserve-requirement rate for banks stands at 12 percent, meaning 12 percent of total deposits at banks must be set aside and not loaned out. Recent discussion raised the possibility of increasing the reserve requirement to 16 percent, a rate previously maintained in 2008.

The NBC will, however, re-evaluate the issue if inflation increases beyond 10 percent, she said.

Economists and bankers generally said they agreed with yesterday’s decision.

“Banks, in general, would be very happy if they didn’t raise the requirement,” Canadia Bank Vice President Dieter Billmeier said. “[Raising the reserve requirement ratio] would take liquidity out of the market and slow down loans going to the public.”

Inflation rates may climb toward the end of the year, but should remain at an acceptable level when compared to Vietnam, Billmeier added.

Kang Chandararot, an independent economist at the Cambodia Institute for Development Studies, said imports from countries with high inflation and a depreciating dollar have fuelled the kingdom’s inflation, not increases in local purchasing power.

“With the country’s current circumstances, we better not use the policy to curb inflation. What they can do is keep exchange rates stable which can give a little [stability] on prices,” he said,

The NBC said it will do just that. Nguon Sokha said the bank will work to maintain the value of the riel against foreign currencies and intervene if the flow of dollars in or out of the country should change drastically. Harvest season crop supply and the increase in local production are helping curb inflation, she said, adding that country’s inflation is seasonal, stemming from upcoming national holidays which push up prices.

NBC intervention, however, has little impact on managing inflation, Kang Chandrarot said. A high import-to-export ratio leaves the Kingdom’s inflation rate reliant on the value of the dollar.