Central Bank Deputy Governor Khin Saw Oo said the government’s newly proposed bill on monetary policy will help control rising inflation throughout the country.
On June 20, Upper House representative Myint Kyi made the proposition to introduce more government policies to tackle Myanmar’s growing fiscal problems.
Since President U Thein Sein came to power, the country’s sweeping economic and political reforms have helped Myanmar’s economy rapidly expand.
However, the increase in capital flows from foreign investments coming into the country has also wiped out the value of Myanmar’s currency.
In June, the IMF released a report estimating the country’s inflation rate will remain at 6.5 percent over this fiscal year, ending March 2015.
The IMF’s Myanmar mission chief, Matt Davies, said without reforms to the country’s monetary policy, the high inflation rates could undercut Myanmar’s future economic growth.
“Fiscal and external buffers remain thin and demand-side pressures on inflation and large capital inflows will strain the stillinfant macroeconomic management tools,” Matt Davies said.
New government policies targeting this concern include work with the World Bank to manage Myanmar’s budget and engagement with private banks to protect the country’s monetary reserves, Khin Saw Oo told reporters.
Khin Saw Oo said although fiscal measures are already in place to manage the country’s inflation concerns, the majority of parliament members voted that more monetary policy is needed.
“The inflation rate has risen to 5.76 percent in April 2014, from 5.53 percent and 1.48 percent respectively in the same months in 2013 and 2012,” Khin Saw Oo said.
Over 90 government members supported the bill, while only 10 parliament members vetoed the proposal.
The Myanmar Kyat’s value has stabilised in recent months but the increase of foreign banks into Myanmar could see international capital drive down consumer interest in the currency.
Davies said Myanmar’s macroeconomic management tools are insufficient to address the country’s inflationary pressures.
Parliament’s agreement on the monetary policy bill shows authorities are taking action to manage the country’s inflation concerns.
However, the IMF warned continual improvements to macroeconomic policy are needed to protect Myanmar from fiscal pressures.
“Ensuring this growth is sustainable and inclusive requires decisive implementation of a broad range of policies and structural reforms,” Davies said.
The current exchange rate of Kyat and the US dollar is approximately $1 to K975.
The Central Bank of Myanmar adopted a managed float for its currency, scrapping a 35-year fixed exchange rate in April 2012, setting a daily rate of K818 per dollar, near the black-market level at that time.
The previous official rate, pegged to the International Monetary Fund’s special drawing rights, was K6.4, 125 times stronger than the black market and available only to state-owned companies.