National Bank of Cambodia (NBC) sold nearly $600 million in 2021 to banks and money changers through auctions to stabilise the exchange rate to sustain the macro-economic conditions following the Covid-19 pandemic.

The central bank’s latest report, Financial Sustainability Review (FSR) 2021, revealed that the exchange rate came under pressure due to the fall in tourism and remittance receipts, coupled by other challenges faced by the country in its recovery process.

The report pointed out that through the bank’s active intervention the exchange rate was maintained at 4,099 riel per USD on average, depreciating by approximately one per cent compared to 2019.

International reserves slipped five per cent from 2020 to $20.3 billion as at end-2021, which was equivalent to 70 per cent of the gross domestic product (GDP). Despite dipping, it covered 8.3 months of prospective imports, higher than the three-month minimum benchmark for developing countries.

NBC governor Chea Chanto said they have been working closely with the government to restore the economy by launching prudential and effective monetary and fiscal policies.

“Inflation, which was already elevated amid supply-demand imbalances triggered by the pandemic, has soared further. As central banks in advanced countries strive to rein in inflation by hiking interest rates, emerging markets may face tighter financial conditions, larger capital outflows, and weaker domestic currencies.

“As we learn to live with the pandemic, the world faces formidable challenges and an uncertain outlook. While navigating these challenging times, NBC will continue to closely monitor the developments in the banking sector and the broader economy and take any measures necessary to support domestic economic growth while preserving financial stability,” Chanto said in the FSR.

Meanwhile, Anthony Galliano, CEO of financial services firm Cambodian Investment Management Co Ltd, told The Post on June 22 that the Khmer currency, riel, is within its normal trading range currently and will remain stable, if not stronger.

“The fact is, Cambodia is still a dollarised economy, with dollarisation around 85 per cent, and that has underpinned the stability of the riel.

“The USD is very strong and is expected to become stronger in the short-term given rising interest rates, inflationary pressures not seen in four decades, and its safe haven status, [as a result of] geopolitical instability,” he said.

In addition, the US Dollar Index, a measure of the value of the US dollar relative to a basket of foreign currencies, is at the highest it has been since 2002, and on the rise.

At the country’s current level of dollarisation, the riel should remain resilient and stable, unlike neighbouring countries’ currencies, such as the Philippine peso, which is down 12 per cent and the Thai baht, down 3.5 per cent, in the last 12 months.

“I [anticipate] an increase in interest rates, especially in commercial and residential lending, that will have a cooling impact on an already tepid real estate market,” Galliano said.

The downside of dollarisation will reach Cambodia as US interest rates rise, forcing rates in the Kingdom to expand as well.

“Inflationary pressures are global, the rise in commodity prices, especially energy and food, due to the war in the Ukraine, will dampen the economy,” he shared.

Last week, Prime Minister Hun Sen warned that if the knock-on effects of Covid-19 continue and the Ukraine crisis remains unresolved, the looming food crisis could escalate into a global catastrophe, and that everyone would have to be ready to tackle it.

In relation to the impact of Covid-19, he said about $40 million has been spent by the government per month to help vulnerable households via cash transfer programmes. As for the global economic downturn, the government has already prepared “some measures” to alleviate any risks, Hun Sen assured.