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- April 24, 2021 4:57 AM
PHNOM PENH – Inflation in Cambodia has reached 7.2 percent, the highest in more than a decade, due to rises in global oil and food prices.
Chea Chanto, Governor of the National Bank of Cambodia, said that to control this inflationary pressure, Cambodia needs to maintain the value of the riel in terms of the dollar to protect the purchasing power of the riel as well as the income of vulnerable people.
Chanto spoke of the causes of the inflation while speaking about the work results of the National Bank of Cambodia on July 20.
Cambodia is a dollar-use country that is vulnerable to exchange rate fluctuations. These have a direct and rapid impact on local inflation, he said.
“When the value of the riel falls, it will immediately lead to an increase in the prices of goods and services,” he said.
He said that to manage and prevent that issue, the national bank had a policy of stabilizing the exchange rate following exchange rate guidance.
“As the monetary authority, the National Bank of Cambodia has the role of maintaining the value of the riel and setting an appropriate official exchange rate based on the exchange market conditions to contribute to maintaining national macroeconomic stability,” he said.
“The official exchange rate has played an important role in the registration, accounting and payment of ministries, public institutions and the private sector.”
A sufficiently high level of international reserves, which strengthens the confidence of investors and the public in the ability of the national bank to intervene in the foreign exchange market, had also greatly helped to stabilize the exchange rate, he added.
Despite Cambodia's economy facing pressure from COVID-19 and the war in Ukraine, its international reserves were still high enough to guarantee imports for up to eight months in case Cambodia has no foreign direct investment flow.
“It is a matter of pride that Cambodia's international reserves have been kept strong in a situation where some countries are facing a decline in international reserves due to the effects of capital outflows,” he said.
Chheng Kimlong, director of the Center for Governance Innovation and Democracy of the Asian Vision Institute, said banking and financial management were part of the strategy to stabilize inflation.
This had been caused by the war in Ukraine which had been caused by the rising dollar and fuel prices.
“The management of the banking and financial system is focused on controlling interest rates and exchange rates in Cambodia,” Kimlong said.
“These two parts are related to the exchange rate. It controls the exchange of dollars to the riel or the dollar to other currencies and controlling the flow of cash in the market also allows control of interest rates. The use of both policies can help stabilize inflation in our country.”
The official exchange rate of the National Bank of Cambodia on July 20 was one dollar equal to 4,090 riel, while the exchange rate of ACLEDA Bank and ABA Bank one dollar is 4,103 riel.
Separately, the official exchange rate on July 20 of the General Department of Taxation shows that one dollar is equal to 4,104 riel.
The central bank’s monetary policy framework also includes liquidity-providing collateralized operations (LPCO) – financial tools that allow the NBC to lend to financial institutions in the local currency.
It also includes marginal lending facility (MLF), besides riel-denominated overnight loans to address the short-term liquidity needs of banks and other financial institutions.
Originally written in Khmer for ThmeyThmey, this story was translated by Sam Sopich for Cambodianess.