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Lao central bank keeps reserve requirement unchanged
The Bank of the Lao PDR (BOL) expects to keep its reserve requirement unchanged as one of the measures to slow the rising inflation rate, according to a senior central bank official.
The central bank will not increase its reserve requirements despite high inflation.
“At the present time, it is still unnecessary for us to increase the reserve requirement to curb rising inflation,” Monetary Policy Department Deputy Director General Mr Phetsathaphone Keovongvichit told Vientiane Times yesterday.
He made the comment in response to a recommendation from the International Monetary Fund (IMF) to increase the central bank's reserve requirement, which would limit the capacity of commercial banks to issue loans to businesses and, as a result, curb down inflation growth.
The Executive Board of the IMF made the statement after concluding an Article IV consultation with the BOL recently.
Currently, commercial banks have to maintain five percent as reserve in Lao kip and 10 percent in foreign currencies in accordance with the monetary policy of the BOL.
One of the main reasons why the central bank decided to keep the reserve requirement unchanged was due to the successful sale of bonds to the public, which has helped the bank to effectively reduce the supply of money, Mr Phetsathaphone said.
“The central bank has sold a large number of bonds to the public and, although we are unable to provide an exact figure of how much the bonds represent, the monetary supply has been reduced over the past few months.”
The central bank also intends to keep its interest rate unchanged despite the fact that many countries have used a rate hike to control inflation.
Mr Phetsathaphone said that the central bank would closely monitor inflation and introduce appropriate policies when necessary.
According to the Lao National Statistic Bureau, inflation reached 9.24 percent in April, 9.76 percent in May and 9.52 percent in June. The ongoing flooding and natural disasters have fuelled higher inflation rates because large agricultural areas have been damaged, reducing the nation's food supply.
The IMF projects that Lao economic growth will be 8.3 percent in 2011 but that inflation would remain high at 9.7 percent until the end of the year. Further, the main forces driving economic growth in the future will be the mining and hydropower sectors.
The fund urged the central bank to further tighten monetary policies to ensure a slow down of the inflation rate in the upcoming months.
In addition, the IMF expressed appreciation of the central bank's decision to stop lending money to state infrastructure development projects, adding that the move will prevent the country from experiencing higher inflation.
The IMF acknowledged that the BOL's continued efforts to stabilise exchange regimes remain an appropriate monetary policy.
However, one of the IMF's major concerns is the growing imbalance between the income generated by the resource and non-resource based sectors, adding that Laos should focus on developing non-resource sectors to ensure continued growth of the economy because the sustainability of a resource-based economic model is limited.
vientiane times
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