Banking & Finance

CBM to publish Market-Based Reference Exchange Rate

Date: 05 February 2019; Type: Legal News; Source: Myanmar Times

The Central Bank of Myanmar (CBM) will publish a market-based reference exchange rate, or the aggregate of actual market rates for the day, from today onwards, according to a CBM press release.

Effective today, the CBM Reference Exchange Rate of the Myanmar kyat against the US dollar will be calculated as the volume weighted average exchange rate of interbank and bank-customer deals during the day.

The CBM’s objective is to manage excessive short-term volatility of the exchange rate.

Up until yesterday, the CBM Reference Exchange Rate was based on the cut-off rate of its two-way interbank foreign exchange auction, which was introduced in 2012 to facilitate the development of the foreign exchange market.

Under the auction, the size of the interbank market increased from just US$10 million in 2013-14 to $2 billion in 2017-18 and continues to grow.

“Therefore, the CBM is moving forward to a new step of development: to determine reference exchange rate as a market-based weighted average rate in line with the international best practices of central banks,” the CBM’s statement said.

The CBM will also change publication time of reference exchange rate to 4pm, when all data for the day is available. In the current system, the CBM uses the last business day’s weighted average rate to set reference rate in the morning, which can create a misalignment from the current market exchange rate, especially after long holidays or weekends, the CBM said.

“The new mechanism will help to avoid this misalignment, as the reference rate will be published in the same day.”

The CBM also calculates and publishes the reference exchange rates of other foreign currencies of Myanmar kyat, which will be determined according to the rate on international markets or the issuer country’s domestic interbank foreign exchange market.

“The reference exchange rate is an indicative rate and participants in the foreign exchange market are not required to use it in their foreign exchange transactions,” the statement said.

To increase data availability for the public, the CBM will also publish fresh data on the daily Nominal Effective Exchange Rate and monthly Real Effective Exchange Rate.

The Reference Exchange Rate was K1519 per dollar at the close of February 4, according to the CBM’s website.

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