US Fed Rise Pushed Up Cambodian Rates

ACLEDA Bank employees count US currency inside the bank in Phnom Penh on May 25, 2020. Photo by TANG CHHIN Sothy / AFP

PHNOM PENH – Local banks have put up interest rates by at least 0.5% for borrowers.

This follows the US Federal Reserve increasing its base rate, which affects Cambodia where the economy is 85% dollarized.

Since March 2022, the US Federal Reserve raised the base rate from near zero by 3.75 percentage points, a jump that has never happened in 40 years and which raised rates in international markets.

In Cambodia, some banks and financial institutions have already increased their interest rate on clients’ loans in dollars.

These include the Cathay United Bank Cambodia and SBI LY HOUR Bank, which will implement the rise from April.

Chea Serey, deputy governor of the National Bank of Cambodia, is not happy about that but can’t do anything about it because the country has a high dollarization rate while the bank and financial institutions provide lots of loans in the US dollar.

This has a negative impact on Cambodia because the high dollarization has made it hard for the country to control its domestic monetary policy.

“We could not dissent or do anything when the US Federal Reserve decided to change monetary policy because we use their money,” she said at the 43rd Anniversary of the Re-Issuance of Money and Re-Establishment of Monetary System in Cambodia on April 5.

If the riel was used more in economic activities, the NBC would be able to control the market interest rate.

She urged all public institutions and businesses to support the use of the riel as well as providing favorable conditions for its use.

Wider use of the riel was critical to increasing the NBC's ability to manage interest rate fluctuations and maintain price stability.

A report by the International Monetary Fund shows that Cambodia has the highest dollarization rate in Asia, while the dollarization rate in neighboring countries such as Laos and Vietnam is tending to decline.

Because the US dollar is the dominant currency in the Cambodian economy, foreign currency deposits are abundant in the banking system.

According to NBC's annual report for 2022, the US currency accounted for 84.2% of the broad money (M2), while it increased by 1.1% compared to 2021, and the circulation of the riel accounted for 7.7 percent of the broad money.


Originally written in Khmer for ThmeyThmey, this story was translated by Te Chhaysinh for Cambodianess.

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