IST, Agencies
PHNOM PENH: The Cambodian government has decided to double the private bank reserve requirement in a bid to reduce cash flow in the economy and tame inflation, a Finance Ministry official said Wednesday.
The measure will take effect in July when all private banks will have to raise their reserve requirement from 8 percent to 16 per cent, said Hang Chuon Naron, secretary-general of Cambodia's Finance Ministry.
He said the move is necessary to cut back on loans made to the private sector and help cool down the economy, which ``has been heating due to too much cash circulation ... that has spurred investment but also driven up prices on property and general commodities.''
The Cambodian economy grew an average of 11.1 per cent a year in the 2004-7 period. Inflation rose along with the growth, with sharp increases in foods and fuel.
Through the end of January, measuring from the end of 2006, the food price index increased 20.9 per cent and the transportation cost index rose 13.5 per cent, the Finance Ministry said in a report last month.
Officials at the Association of Banks in Cambodia could not be reached for comment Wednesday.
In Channy, the president and CEO of ACLEDA Bank Plc, said the reserve measure ``is not a good idea at all.'' He said it would slow growth and limit business and employment opportunities.
Banks should lend out 100 per cent of the deposits made by the public, he said.
``The more they lend the more investment can be generated, as well as more employment, more income for both companies and private individuals,'' he said.
Cambodia has a cashed-based economy in which 90 per cent of bank deposits and the money in circulation is in foreign currency, mostly the US dollar.
In Channy said current bank deposits in Cambodia total about $2.4 billion (euro1.6 billion). ACLEDA is holding 21 per cent of the total deposits, making it the second largest commercial bank in the country.
He said banks' loans which are already less than 80 percent of the total deposits will effectively shrink by another 8 percent as a result of the government measure. The reduction, he predicted, would result in a decline in investment and employment.
Even if the measure was necessary, it should have been gradual and ``not jumped straight to 16 per cent'' from 8 percent, In Channy said. ``I believe we need more growth,'' he added.
Hang Chuon Naron, the Finance Ministry official, did not say how long the measure would stay in place. He stressed that the government's ``goal is to cool (the economy) down to avoid too much inflation.''
``When it grows too strongly, it generates inflation, so we cannot tackle both'' at the same time, he said.
The measure will take effect in July when all private banks will have to raise their reserve requirement from 8 percent to 16 per cent, said Hang Chuon Naron, secretary-general of Cambodia's Finance Ministry.
He said the move is necessary to cut back on loans made to the private sector and help cool down the economy, which ``has been heating due to too much cash circulation ... that has spurred investment but also driven up prices on property and general commodities.''
The Cambodian economy grew an average of 11.1 per cent a year in the 2004-7 period. Inflation rose along with the growth, with sharp increases in foods and fuel.
Through the end of January, measuring from the end of 2006, the food price index increased 20.9 per cent and the transportation cost index rose 13.5 per cent, the Finance Ministry said in a report last month.
Officials at the Association of Banks in Cambodia could not be reached for comment Wednesday.
In Channy, the president and CEO of ACLEDA Bank Plc, said the reserve measure ``is not a good idea at all.'' He said it would slow growth and limit business and employment opportunities.
Banks should lend out 100 per cent of the deposits made by the public, he said.
``The more they lend the more investment can be generated, as well as more employment, more income for both companies and private individuals,'' he said.
Cambodia has a cashed-based economy in which 90 per cent of bank deposits and the money in circulation is in foreign currency, mostly the US dollar.
In Channy said current bank deposits in Cambodia total about $2.4 billion (euro1.6 billion). ACLEDA is holding 21 per cent of the total deposits, making it the second largest commercial bank in the country.
He said banks' loans which are already less than 80 percent of the total deposits will effectively shrink by another 8 percent as a result of the government measure. The reduction, he predicted, would result in a decline in investment and employment.
Even if the measure was necessary, it should have been gradual and ``not jumped straight to 16 per cent'' from 8 percent, In Channy said. ``I believe we need more growth,'' he added.
Hang Chuon Naron, the Finance Ministry official, did not say how long the measure would stay in place. He stressed that the government's ``goal is to cool (the economy) down to avoid too much inflation.''
``When it grows too strongly, it generates inflation, so we cannot tackle both'' at the same time, he said.
5 comments:
"In Channy, the president and CEO of ACLEDA Bank Plc, said the reserve measure ``is not a good idea at all.'' He said it would slow growth and limit business and employment opportunities.
Banks should lend out 100 per cent of the deposits made by the public, he said.
``The more they lend the more investment can be generated, as well as more employment, more income for both companies and private individuals,'' he said."
I have to agree with In Channy because inflation is related to competition. The more people get into competition the lower the price will be. Furthermore, the more competition we have to more jobs will be available as well, and that is what Cambodia needed badly right now.
Therefore, I hope Hang Chuon Naron would reconsidering his decision before it's too late.
In Cambodia's case, inflation is resulted from an increase in gasoline price, which is supply side, not demand side. But Mr. Chuon Naron measure intends to curb the demand side.
beginning economist:)
I don think rising bank reserve will help Cambodia to fight with inflation. The inflation in Cambodia is related to higher energy cost and weak US dollar; since we are using US dollar, and most products are imported.
And I don think there's anything to do with the competition. They are quite different things between inflation and competition.
I totally agree with Mr. In Channy that rising bank reserve will limit the cash flow in the market, and limit the economic growth and employment.
However, banks should also limit their loans to real estate business since it's overheated. Real estate prices should be adjusted at practical prices, esp. the industrial lands.
Normally Central Banks raise the prime rate to curb inflation, in other words the interest rate that banks pay when they borrow money. This is not possible in Cambodia since all loans are funded by depositors' money. So the policy makes sense on the one hand, but on the other hand, it does hamper development and growth. Only price controls for staple food helps dampen inflation there. Gasoline, as 5:25 correctly points out is a mostly supply-side problem. As long as China, India, and the U. S. keep burning oil the way they do, there isn't a whole lot Cambodia can do. Just look at the gasoline prices in Europe ($2.15/ltr) and the U. S. (average $1.10/ltr).
As for the real estate market, this must cool off by itself; there is no regulatory tool unless you want to go back to a state-run economy. But they could pass a law disallowing the sale of rice paddies for industrial development. Banks such as Canadia and Acleda know what they are doing. They don't loan money for projects that are going to tank. In other words, those projects will help development and growth.
One hand, raise the bank reserve is to reduce the bank credit capacity in lending more to public which in turn there will be less less cash available for new investments. On the other hand, when the credit is limited the bank has no choice but to raise it interest rate, and in order to attract more saving and deposit the bank will have to offer high interest rate also.
Whichsoever way it go, the consumers are the losers but the banks will always have their interest protect.
Inflation is globally issue at this very moment but RGC shall consider a constructive way to slow it down.
Be warned that crude price on the stock market reach a high of USD123.80/barrel last night will definitely feel the pinch in the purse for everyone. The economist predict that it will the USD200/barrel mark in the future, therefore a much needed plan shall be in place should Cambodia would want to enjoy the fruitful economy.
Post a Comment