MAY KUNMAKARA
The National Bank of Cambodia (NBC) will launch a campaign next month to promote greater liquidity of the riel in the country’s financial system, it announced last week.
According to the announcement, the NBC will promote liquidity management by a push to modernize how liquidity is monitored and predicted in the country.
“The National Bank of Cambodia has decided to launch a new operation, called a Liquidity-Providing Collateralized Operation (LPCO), to provide liquidity in riel, in response to the need of banks and microfinance institutions who are concerned parties in the implementation of the country’s monetary policy,” the release said.
“The National Bank of Cambodia plans to start the first LPCO on October 18. The National of Bank of Cambodia will carefully analyze the outcome and effect of each transaction and will correct other conditions if it is necessary to ensure the effectiveness of this new operation,” it added.
Director-General of the NBC, Chea Serey, told Khmer Times that the LPCO is part of the central bank’s strategy to modernize liquidity management and develop the riel money market.
“We expect it to encourage the use of Khmer riel by the banks in their lending operations,” she said.
Ms. Serey also said the LPCO would also be useful to farmers in the country.
“In the context of the challenges faced by the Cambodian agricultural sector, this new liquidity instrument should be helpful, by hopefully contributing to reduce bank lending rates to farmers in our country.”
Leonie Lethbridge, CEO of ANZ Royal, welcomed the new initiative and agreed it would further promote riel liquidity and the use of the domestic currency.
“While the details are yet to be formally released, mechanisms that build liquidity and trust over time will be important,” she said.
Sim Senacheert, CEO of microfinance institution Prasac, said the LPCO will help increase the amount of local currency available for lending.
“It will be good because normally, when we receive loans from abroad, we get it in hard currency [US dollars]. If we want to lend money in riel, the interest rate will be high as they will include other risks and foreign currency exchange fluctuations,” Mr. Senacheert said.
“If NBC can do this, it is good because we can have more local currency for business operations as the current amount [of riel] doesn’t meet demand.”
According to the NBC’s statement, the LPCO will last for three months, and will be extended based on how effective it proves to be. The program will be insured by putting non-convertible debentures up as collateral, in either riel or US dollars.
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