The National Bank of Cambodia is to collaborate with the Bank of Korea’s Knowledge Partnership Programme (BOK-KPP) to jointly study the relationship between the exchange rate and inflation in Cambodia’s economy.
The project aims to promote the development of the Cambodian financial market to support long-term economic growth and enhance the individual and collective capacity of NBC’s executives and officials. It will be complete and published by end of this year.
Chea Serey, director-general of the NBC, said inflation management depends largely on the exchange rate, since the country is highly dollarised.
“We want to explore further the relationship between the exchange rate and inflation in order to implement currency policy to maintain price stability,” Ms Serey said.
Inflation will be stabilised when there is stability in the exchange rate, she added.
Soon Won Chung, senior advisor to BOK-KPP and chief advisor at the Global Management Research Institute, said the joint study will develop a database to analyse the relationship between the exchange rate and inflation.
He said Cambodia is in the early stages of operating a foreign exchange market and the project could help inform future decision making to aid economic development.
“The country has huge potential for development. If we set up economic framework structures, then people will benefit from being able to use those development resources,” Mr Soon said. “The financial sector is important for investment and the economy. This will give Cambodia the chance to draw investment from abroad to develop the economy.”
Neav Chanthana, NBC’s deputy governor, said the exchange rate serves as an anchor for price stability. A deep understanding of the relationship between the exchange rate and inflation is crucial for an effective exchange rate policy implementation, she added.
“One of the main challenges to Cambodia’s economy is dollarisation,” Ms Chanthana said.
Despite its benefits, it exposes the economy to risks and losses, she explained, especially by imposing constraints on monetary policy implementation.
“This joint research will contribute to enhancing our staff capacity in analysing factors affecting the exchange rate and provide macroeconomic models for better analysis,” Ms Chanthana said.
“It will also contribute to improving the NBC’s performance on formulating a more effective monetary policy, which is our central bank’s primary objective.”
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