Thailand
Cambodia: Importance of riel in managing economic headwinds
National Bank of Cambodia has been consistently taking steps to increase the use of riel in different parts of the country. There have been encouraging signs in the usage of riel by different sections of society in their day-to-day life. However, the world economy, which showed signs of recovery for a while after the devastating Covid-19 effect, has been facing the threat of recession in several developed countries, including the US and Europe, and a surge in inflation.
Cambodia, which has been depending on export revenue for its economic growth, is likely to face a setback in its garment exports, particularly to European countries, in 2023. However, due to several uncertain developments in the world economy, the appreciating dollar has its merits and demerits for an export-dependent country like Cambodia.
According to the expectations of the Ministry of Economy and Finance for 2023, Cambodia’s economy is expected to expand, yet at a slower pace, with a growth of 5.6 percent. The growth of exporting sectors, especially the garment sector, is expected to slow down with a growth of 5.5 percent due to unfavourable external demand, especially in the EU market.
However, the non-garment sector is expected to continue with a growth of 11.7 percent, supported by the high potential of some export productions (furniture, solar, and electronic components, etc.), and productions for domestic demand, especially food and beverages productions.
“In 2023, consumer price inflation is expected to be 3.2%. This decelerating growth is due to the expected normalization of global commodity prices, especially energy prices. The food CPI is expected to rise by 3.3 percent. Meanwhile, as global energy prices fall, transportation CPI is expected to fall by -3.8 percent. The continued implementation of government intervention in 2023 will play a key role in stabilising socio-economy and supporting growth this year,” it pointed out.
As per the Economic and Monetary Statistics published by NBC in November last year, “the headline consumer price inflation in November 2022 accelerated over the previous month, while the riel appreciated against the dollar”.
NBC is also optimistic that it can retain the Kingdom’s inflation at manageable levels despite unfavourable geopolitical situations and rising oil and food prices.
With dollar gaining strength, it can be beneficial when considering the exchange rate between the riel and dollar. The stable nature of the exchange rate can help the purchasing power of the people and thus could reduce the impact of rising inflation, according to some experts.
According to NBC, “the exchange rate (market buying rate) was KHR 4,110 per USD in November 2022, appreciated by 0.6 percent over October.”
Regarding money supply, it said that the broad money (M2) decreased slightly to KHR 169,864.9 billion in November 2022, down by 0.01 percent compared to October. The main components of M2 showed that transferable deposits decreased by 3.2 percent, while currency outside depository corporations and other deposits increased by 2.1 percent and 0.5 percent, respectively. The interest rate on deposits and loans in the banking sector in November 2022 showed that the weighted average interest rate on deposits in KHR increased by 0.03 percent to 0.89 percent, while deposits in USD decreased by 0.11 percent to 0.49 percent. The weighted average interest rate on loans in KHR decreased by 0.57 percent to 10.89 percent, and loan in USD decreased by 0.2 percent.
Source: https://www.khmertimeskh.com/501270725/importance-of-riel-in-managing-economic-headwinds-2/