With oil prices predicted to decrease, inflation – at its highest in a decade – looks set to follow suit in the second half of this year, Governor of the National Bank of Cambodia (NBC), Chea Chanto, said this week.
During a closing speech at a ceremony on Wednesday, Chanto said Cambodia's economy also faces uncertainties. This includes the risk of a slowdown of economic growth in the European Union, which could affect exports, and a decrease in Chinese economic growth, which may reduce investment and slow the country’s recovery in the tourism and real estate sectors.
“Even the raising of interest rates by the US Federal Reserve does not have a direct effect on interest rates in Cambodia, but it may put pressure on exchange rates because of the increasing value of the US dollar on the international market,” Chanto said.
He said earlier on Wednesday that in line with globally rising oil and food prices, inflation in Cambodia has been gradually rising. It hit 7.2 percent in June.
Chanto said authorities plan to address challenges, including maintaining exchange rate stability and a suitable level of interest rate, monitoring and maintaining financial stability, modernizing payment systems, and managing cash flow.
“Banking and financial institutions must continue to work hard to develop their services, especially improving operations efficiency and diversifying service to be able to reduce costs and increase sources of income by avoiding raising interest rates,” Chanto said.
He added that the NBC will continue to use essential monetary policies to keep the riel stable to protect the purchasing power of the national currency as well as the income of vulnerable people, while continuing to push the widespread use of local currency.
The World Bank said in a report last month that rising inflationary pressures are posing serious policy challenges for Cambodian authorities, adding it is crucial for the NBC to continue to commit to maintaining exchange rate stability. It added that the 7.2 percent inflation is actually a 13-year high.
“For the government, it is important to avoid creating excess aggregate demand, which might trigger undue domestic inflationary pressures on top of the imported inflation,” the report said. “The prospect of a protracted period of high inflation and a sharp increase in global interest rates has significant implications for Cambodia, whose economy is highly dollarized.”
Those affected the most are low-income individuals, known as the vulnerable, as they spend 50 percent of their income on food and housing, said economist Ngeth Chou.
“For the outlook, we can’t say whether the situation will be better because there are implications from global politics, so we are in the way of uncertainties. There are a lot of uncertainties and the fragile world economic order,” Chou told Kiripost.
“The signs, we have already seen, are the drop in value of euro and rupee of Indian currency,” he said. “We live in a globalized world so everything in the world is a market system that a few countries are disconnected from, so all people are unavoidably affected.”