Myanmar Central Bank Official Details Planned Reforms

NAYPYITAW, Myanmar--Myanmar's government is set to revolutionize the operation of its central bank, empowering it to adjust monetary conditions independently, stopping it from financing the government's debts, and appointing external experts to participate in the policy-setting process, a senior official said.

In an interview at the central bank's headquarters in the capital of Naypyitaw, Khin Saw Oo, deputy director general of the financial institution's regulation and anti-money laundering department, said she was quite sure Myanmar's president would sign the new central bank law before the end of the current parliamentary session which concludes at the end of July.

She also said she was unconcerned by recent depreciation in the Myanmar kyat, which has fallen around 10% against the dollar since the start of this year, since the central bank received criticism after it unified the former official and unofficial exchange rates in April 2012 that the local currency was overvalued.

However, the central bank is monitoring the currency closely and will intervene in the event of serious volatility, she said.

The successful passage of the central bank law would mark a major step in building confidence in Myanmar's institutions, and help bolster foreign investment in the country.

Currently, the central bank is merely a department of the finance ministry.

"The [new] law will empower the central bank to exercise the monetary policies independently," Ms. Khin Saw Oo said.

As part of the reforms, the government will dissolve the central bank's current leadership structure and replace it with a nine-member board chaired by the central bank governor, consisting of three other central bank executives as deputy governors and five non-executives from other professions.

Board members will be nominated by the president's office but parliamentary approval will be required.

Under the board, there will be four committees in charge of monetary policy, financial stability, payment systems and foreign exchange management.

The monetary policy committee will be chaired by one of the deputy governors and staffed by other members of that department, while a macroeconomic forecasting department will also be established, Ms. Khin Saw Oo said.

While the new policymakers will be drawn from within the country, the central bank has one general advisor supported by the International Monetary Fund at its Yangon branch.

It will soon get a resident advisor on regulation and supervision from the IMF too.

Under the new regime, the central bank will shift its policy focus to adjusting underlying demand for and supply of bank reserves via open market operations and deposit auctions--so-called indirect instruments--like many major central banks, instead of using its regulatory powers to set interest rates directly.

The system will remain based on a reserve money targeting approach, with the central bank aiming for a certain rate of money supply growth rather than shifting to inflation targeting, she said.

In August, the central bank will commence deposit auctions--which it can use to withdraw liquidity from the system-- and in September Myanmar's authorities plan to issue regulation for the setting up of a treasury bill market, with the help of the IMF, she noted.

At present, Myanmar's central bank directly finances around 40% of the government deficit--a practice regarded as a big no-no among monetary policy experts and which can spur rampant inflation.

Once the new law is passed, the central bank will gradually reduce to zero the proportion of the deficit it finances, Ms. Khin Saw Oo said, adding that the central bank will also be able to issue its own bonds if needed. 

soruce: NASDAQ

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