The central bank held six currency auctions from September 2-28 and sold $150 million on the foreign exchange (forex) market. Hean Rangsey
The National Bank of Cambodia (NBC) has introduced a marginal lending facility (MLF) to address the short-term liquidity needs of banking and financial institutions in emergency situation to carry out their business operations.
The facility offers riel-denominated overnight loans that can be extended to a period not exceeding five days, the central bank said, adding that it accepts negotiable certificates of deposits (NCD) as collateral.
The central bank, however, did not specify interest rates on the facility.
The NBC said the MLF was created as part of its pursuit to “develop monetary policy instruments in line with the current progress of the banking system and to forge a more effective interbank market”.
Prasac Microfinance Institution Ltd senior vice-president Say Sony believes that the MLF will provide a shot in the arm for financial institutions, particularly those that struggle from liquidity crunch.
The central bank is putting more tools in the hands of institutions “to prop up bank operations and protect the sector and its clients”, he said, sharing that Prasac “has no problem with liquidity at the moment”.
“Financial institutions will keep lending, depositors will keep depositing their money, and investors will keep looking for investment opportunities in the sector. Thanks to the NBC for its proactive approach in introducing the facility, in support of the sector,” Sony added.
Meanwhile, the central bank held six currency auctions from September 2-28 and sold $150 million on the foreign exchange (forex) market, meant to stabilise the riel’s fluctuations against the greenback, shore up economic activity during the ongoing health crisis and power a faster economic recovery.
In its forex intervention, the central bank sold $20 million on September 2, 6, 17 and 28, $30 million on September 8, $40 million on September 21, The Post understands.
NBC director-general Chea Serey told The Post that the central bank has been very effective in stabilising riel exchange rate movements over the last two decades, maintaining the purchasing power of the local currency, building confidence in the riel, and encouraging its circulation, as well as KHR-denominated savings.
“This significantly contributes to stabilising the macroeconomy and to the improvement of economic activity towards sustainability,” she explained.
To maintain the riel’s stability in the forex market, NBC cautiously monitors trends, prices and news, buys and sells KHR-denominated bills to financial institutions through the NBC Platform (NBCP), sells USD through auctions, and uses other key financial tools, she said.
These include tweaking the interest rates on the liquidity-providing collateralised operation (LPCO) – a financial tool that allows the NBC to lend to financial institutions in the local currency – or the negotiated certificate deposit (NCD), a tool that allows the financial sector to deposit with the central bank to earn interest, she noted.
