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Central bank to strike new exchange rate for the kyat - MYANMAR

Myanmar's central bank plans to set the country's new exchange rate at around 820 kyat per US$1 (30.8 baht), close to its black market level, as the nation pushes ahead with economic reforms, two officials with private Myanmar banks said yesterday.

The change would be a shock for government institutions and state-owned enterprises that have been using the official exchange rate of 6.4 kyat per dollar, the central bank has said. But broader economic waves are unlikely since an exchange rate of around 800 is widely in use.

The bank officials said on the sidelines of an industry event in Kuala Lumpur, where they were speaking, that the new "managed float" system would have a trading band of plus or minus 2%.

"We are now in the auction process, and there is a plan to manage the float of the currency at 820 kyat, plus or minus 2%, to one US dollar," Aung Kyaw Myo, an official of Kanbawza Bank Ltd, said.

The central bank had been expected to set the currency around that level as it moves to unify the country's dual exchange rate in the coming weeks _ Myanmar's boldest economic reform yet as it emerges from decades of isolation.

The government is calculating its national budget for the year from April 1 using an exchange rate of 800 kyat per dollar, a central bank official said last week.

The currency reform is a major step in ending market distortions caused by the dual system and improving transparency as foreign investors pour into the Southeast Asian country following bold economic and political reforms in recent months.

But it could also cause some disruptions and anxiety in a country where memories of economic mismanagement are fresh.

The sudden cancellation of certain banknote denominations by the late dictator General Ne Win in 1987 led to many people's savings being wiped out and helped trigger a pro-democracy uprising the following year.

The kyat's unofficial rate, used in most transactions, has jumped from more than 1,000 per dollar in 2009 as foreign money has flowed into the timber, energy and gem sectors. That has hurt many Myanmar people, from farmers and manufacturers to traders and employees of foreign firms paid in dollars.

"This market-driven reform will boost foreign investment interest," said Douglas Clayton, chief executive of Leopard Capital, a private equity fund focused on emerging Asian markets.

"In terms of growing pains, there could be some imbalances in supply and demand but that will not be unusual in such a transition."

K K Hlaing, a businessman in Myanmar's commercial capital Yangon, said he expected there would be little disruption from the new exchange rate as it was already widely used in business transactions.

"The government is simply formalising the unofficial exchange rates in anticipation for investment," he said.

"There isn't going to be any sudden economic shock with this as the people have been going about their business using the 800-820 kyat range."