The National Bank of Cambodia (NBC) last year used less riel to buy US dollars thanks to more financial institutions using the central bank’s new monetary policy instruments. As a result, the exchange rate was stabilised.
The NBC annual report said that between January and December last year, the bank injected $875 million worth of riel into the economy to stabilise the exchange rate. This amounted to a nine per cent decrease from 2017.
As a result of the intervention, the exchange rate against the dollar remained stable at an average of 4,050 riel per US dollar.
As Cambodia is a heavily dollarised economy, the NBC is limited to purchasing dollars and making changes to reserve requirements to stabilise the exchange rate.
Need for riel
The NBC said many financial institutions, including microfinance institutions, are in need of more riel, which they are able to receive through the NBC’s new monetary policy instrument, which holds liquidity-providing collateralised operations (LPCOs).
In its 2018 report, the NBC said: “The high level of dollarisation has placed a limit on the effectiveness of monetary policy and has increased economic vulnerability. In such a situation, it requires the country to find an effective monetary policy instrument to support growth as well as to maintain macroeconomic stability.”
Last year, the NBC held 12 LPCOs, making one billion riel available to financial institutions in an auction in which repurchase agreements were signed for 697 billion riel ($172 million). There were 12 financial institutions successfully bidding in the auction last year, increased from just five in 2017.
LOLC (Cambodia) Plc CEO Sok Voeun said on Monday that the stability of the exchange rate increased the demand for riel, reflecting increasing consumer confidence in the national currency.
Voeun said financial institutions are now having more and better options to receive funds in riel compared to NBC’s LPCOs or loans in riel from local commercial banks.
The central bank is now expanding loans in riel to MFIs as they rush to fulfil their requirement that at least 10 per cent of total loans are made in riel by the end of this year.
“The exchange rate of the riel has been stabilised and it has provided strong confidence in investors’ benefits. The exchange rate is very stable, and so far, the National Bank has implemented an effective policy to [do so],” Voeun said.
