The dollar is weakening on the back of mounting uncertainty over a trade deal between the US and China and impeachment charges against US President Donald Trump. That’s culled demand for the greenback locally, leading to the appreciation of the kyat.

“During this period of time, investors are limiting their investments in the manufacturing sector because there is a lack of demand. As a result, the use of foreign currency in the local economy has declined, leading to a stronger kyat,” said U Maung Maung Lay, economist and vice chair of the Union of Myanmar Federation of Chambers of Commerce and Industry (UMFCCI).

The Central Bank of Myanmar has been purchasing dollars to stabilise the exchange rate since October. Between October 31 and December 6, it mopped up a total of US$39.3 million in the foreign currency exchange auction market, according an official announcement.

Efforts to reach the CBM for comment on this report were unsuccessful. Earlier this year though, U Bo Bo Nge, deputy governor of the CBM, explained that the Central Bank intervenes in the foreign exchange market with the goal of preventing drastic movements in the dollar-kyat exchange rate as well as to boost the country’s foreign exchange reserves.

U Aung Ko Ko, a local economist, said “the CBM’s move to purchase foreign currency is to prevent sharp drops or spikes in the exchange rates so businesses can run smoothly in Myanmar.”

Indeed, the CBM has managed to keep the exchange rate stable between K1530 and K1550 per dollar for most of the year. “The exchange rate movements in Myanmar this year have broadly been associated with vulnerabilities in the balance of payments, sticky high inflation in Myanmar, and the overall movement of the US dollar in the global market,” economists from the ASEAN+3 Macroeconomic Research Office (AMRO) said.

Nevertheless, the authorities have been more flexible in managing the exchange rate, they said, adding that as Myanmar’s international reserves are relatively low compared to regional peers, the CBM should “continue building up its foreign reserves by opportunistically intervening in the foreign exchange market.”

Despite the recent volatility, AMRO expects the kyat to remain “relatively stable” in 2020. At current levels, the exchange rate could also help make imports more affordable and the trade deficit – now US$1.13 billion – narrow further.

“The CBM’s efforts to maintain the current exchange rate by purchasing dollars in the local market are good. But illegal trading is overwhelming and it is difficult to control the flow of currency in the informal economy, which is bad for business in the formal economy. More needs to be done by the government on this front,” said U Maung Maung Lay.

Source: https://www.mmtimes.com/news/kyat-us-dollar-exchange-rate-expected-be-stable-2020.html