Riel Slightly Appreciates as Central Bank Takes More Action

The riel rose late yesterday trading at 4,246 riel to the dollar, appreciating 0.37 percent compared to the same day last week and 0.21 percent since Friday’s close, according to data at the Ly Hour exchange in Phnom Penh.

The steady appreciation of the riel came as the National Bank of Cambodia announced on Friday it would purchase $7 million of riel from commercial banks and currency exchanges by the end of this month in order to boost the value of the local currency.

After the dispersal of dollars into the economy, which started yesterday and finishes on June 30, the total amount of riel purchased by the central bank since May 21 will stand at $17 million.

On June 1 the riel hit a low for the year falling to 4,273 riel to the dollar, a trend brought about due to lower flows of dollars running through the economy as both the tourism and harvesting season have come to an end, analysts say.

Neou Seiha, a senior researcher at the Economic Institute of Cambodia, said the riel’s low value pointed to weak growth in dollar generating sectors such as construction, tourism and garments.

“Now these sectors are still low. That is why we have some pressure on the exchange rate,” he said, adding that the growing strength of the dollar on the international marker had also put pressure on the value of the riel.

More dollars flowing through the economy makes the riel more scarce and, therefore, more valuable.

Mr Seiha said that the amount of riel being bought by the government was part of the government’s strategy to ‘de-dollarize’ as too much depreciation in the riel would reduce levels of confidence in the currency.

“If the exchange rate of the riel depreciates it means that the cost of imported goods will be higher” for purchases made in riel,” Mr Seiha said.

Although analysts say that the bank’s action is necessary to prevent the value of the riel from slipping even lower, by selling foreign currency it also takes on a certain amount of risk.

Purchasing riel through selling foreign exchange would reduce Cambodia’s international reserves leaving the country “less able to respond to external shocks,” John Nelmes, resident representative of the International Monetary Fund in Cambodia, wrote in an email last week.

According to the World Bank government deposits in US dollars was $539 million in 2009, down from $727 million in 2008.

(Additional reporting by Hul Reaksmey)

 

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