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Riel continues to depreciate

In Economy, Finance, Monetary on June 1, 2010 by viCheth

Monday, 31 May 2010
Nguon Sovan
The Phnom Penh Post

Strong dollar and eurozone worries hobble NBC efforts to stabilise currency

THE riel continued to depreciate against the US dollar last week despite a US$4 million National Bank of Cambodia (NBC) intervention aimed at increasing its value, experts say.

The NBC dipped into its dollar reserves to purchase riel on May 21 in an attempt to shore up the Cambodian currency’s value.

Ly Hour Exchange owner Sieng Lim said the $4 million intervention had been too small to stop the depreciation of the riel, and that its decline is partly the result of a strengthening US dollar.

The riel traded at 4,260 per dollar on Sunday, down 0.52 percent for the week from 4,238 on May 23. The riel has lost 1.67 percent of its value over the last 45 days, down from 4,190 riel per US dollar in mid-April, according to statistics from Ly Hour Exchange.

However, Sieng Lim said the central bank deliberately intervenes gradually in the Kingdom’s currency, a policy she said she supports.

“When the value of the riel fluctuates, normally the NBC spends US dollars to stabilise the riel, or increase or decrease the prices slightly,” she said on Sunday.

“If the NBC injected more US dollars [to purchase riels], the riel’s value would appreciate quickly, affecting people and the price of goods.”

Most international currencies have been dropping against the US dollar, she added, pointing out €1 was worth $1.23 on Sunday, a 12 percent decline from $1.40 for the same date last month.

Cambodia Institute for Development Study president Kang Chandararot said the intervention had been limited by its small size, having only a slight impact on the riel’s exchange rate.

“NBC should release further US dollar reserves to stabilise the riel – each intervention should be around $10 million,” he said. He added that further interventions should be gradually conducted to avoid sharply appreciating the riel and impacting trade.

He estimated that some $500 million worth of riel is in circulation, said that slowing inflows of trade and investment denominated in US dollars have contributed to the recent strength of the greenback against the Kingdom’s currency.

The riel’s exchange rates closely parallel that of the European Union’s currency, he added. “Recent depreciation of the euro also influenced the riel’s depreciation. When the euro has stabilised, so has the riel.”

NBC Director General Tal Nay Im declined to comment on Sunday, but said in a previous interview that the NBC scrutinises exchange rates every day. Analysts have attributed the recent strength of the US dollar to investors reverting to safe assets because of European financial concerns.

The middle of the year is also a traditional soft spot for the riel’s value, according to International Monetary Fund (IMF) data. The currency generally peaks in December and January, as increased tourism brings in additional dollars, and the harvest leads to more transactions denominated in riel.

Generally, the NBC intervenes when the riel drops below 4,200 to the dollar by dipping into its foreign reserves to buy Cambodia’s currency.

It held $2.8 billion in foreign reserves at the end of the first quarter of 2010, according to NBC data.

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