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Biggest riel buy-up yet

NBC’s latest auctions will bring dollar sales to $30m this year

THE National Bank of Cambodia (NBC) on Tuesday announced a further US$13 million purchase of riels in order to boost the faltering local currency, bringing total buys to $30 million worth so far this year.

The value of the Kingdom’s riel has fallen about 2 percent since April, reaching record lows earlier this year. On Tuesday, it traded at 4,275 to a dollar, from around 4,190 in mid-April, according to Ly Hour’s Phnom Penh exchange.

The riel’s devaluation has sparked NBC to take large amounts of riel out of circulation, in a bid to create artificial demand for the notes, therefore raising its value against the greenback.

The latest $13 million currency sale will be put out by the NBC for bidding in separate, $1 million lots from July 2 to 30. It follows a $7 million sale announced June 13 and $10 million in sales conducted in the three weeks previous.

So far, the ploy has had little success. The June sales were announced when the riel was trading at a stronger level of 4,252 a dollar, and it has remained above the NBC’s preferred rate of between 4,000 and 4,200 riels since.

Analysts believe that the bank’s ploy is the only possible course of action to take in an economy dominated by the dollar.

Asian Development Bank (ADB) Office of Regional Economic Integration’s chief economist Jayant Menon said Tuesday that the government was constrained in its options.

“In most un-dollarised countries, if they felt the exchange rate was unwarranted, they could raise domestic interest rates,” he said.

In such countries raising interest rates, he said, would attract foreign exchange, thereby increasing demand for domestic currency.

But in Cambodia’s case, because the dollar and riel are so transferable, raising interest rates would have little long-term affect on exchange rates.
“The problem with buying up riels is that [US dollar] reserves can’t last indefinitely,” he warned.

But in the meantime, traders remain unconcerned, with Ly Hour Exchange owner Sieng Lim stating Tuesday that the depreciation is “still small”.

ACLEDA Bank officials added Tuesday that a modest depreciation in the riel over the course of the year would not significantly affect financial plans.

“If the riel depreciates a little we are not surprised,” Chief Treasury and Information Officer Cheam Teang said.

The NBC is banking on a seasonal upsurge in riel value late this year, when tourists pump dollars into the economy.

NBC Director General Tal Nay Im said: “Every year, the currency gains value in September or October.”

In the past two years, the riel has bottomed out in July, falling to 4,187 last year.

NBC held $2.5 billion in foreign reserves as of May.

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