Junta-controlled central bank raises interest rates as value of Myanmar kyat plummets

In a bid to curb out-of-control inflation amid increasingly desperate economic conditions, Myanmar’s military-controlled central bank announced an interest rate hike on August 14. The minimum interest rate for bank deposits will rise from five to seven percent, and the maximum interest rate allowed for loans increased from 10 to 15 percent, according to a statement issued by the Central Bank of Myanmar (CBM). The CBM, which said that interest rates may vary within a certain range for both deposits and loans, did not specify a maximum rate for deposits. The changes are due to take effect on September 1. When asked for comment, a finance expert said the consequences from the junta’s action could be dire, predicting that “The entire financial system could potentially collapse.” “It isn’t that increasing bank deposits is a bad thing,” he elaborated. “It helps reduce the amount of ‘currency in circulation’ in the country. But investment businesses won’t be able to operate under current political conditions. What can be done when banks have to pay interest on deposits but have no opportunities to invest those deposits?” Set Aung, an economist who served as a deputy minister of planning and finance in the civilian government of the National League for Democracy and deputy governor at the CBM in the Thein Sein administration, also commented on the change. “While raising interest rates to curb inflation is a common practice in many countries, in Myanmar—currently showing signs of ‘stagflation’—this approach could further exacerbate the already deteriorating economic situation,” Set Aung posted on his LinkedIn page the day after the CBM’s announcement. He went on to recommend alternative measures, saying the junta could “restore public confidence in the banking system by ensuring that restrictions on withdrawals are never reimposed,” and “avoid issuing or implementing policies that could destabilise the market, such as the Conscription Law.” As conflict spreads throughout the country and the economy stagnates, especially away from major cities, a decline in deposits and a proliferation of nonperforming loans have left domestic banks struggling to survive. According to sources in banking, the junta’s restrictions on withdrawals have also diminished public confidence in the banks. “It’s not as easy as it used to be for small banks to attract deposits or issue loans. They only earn interest by providing loans, and the present situation has created some very difficult challenges,” a top official from a private bank told Myanmar Now in July. Adding to its erratic management of the economy in the three years since seizing power in a coup, Myanmar’s military junta has aggravated the disorder in the banking sector with arbitrary crackdowns. At the beginning of July, the military council announced a plan to arrest and bring charges against the managers of seven private banks for exceeding lending limits, causing crowds of panicked bank customers to rush to withdraw their deposits.

Junta-controlled central bank raises interest rates as value of Myanmar kyat plummets

The Central Bank of Myanmar increased the minimum interest rate for bank deposits from five to seven percent and the maximum interest rate for loans to 15 percent

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