Central Bank Urged To Stabilise The KIP

Source: Vientiane Times

The Bank of the Lao PDR must introduce more concrete measures to keep the value of the kip stable, otherwise the country will face a big challenge in keeping the cost of living at an acceptable level, according to a report from the Lao National Statistics Bureau.

The bureau, which is in charge of the collection of socio-economic data, released the latest report on the inflation situation in Laos, highlighting some of the challenges the country is facing, especially the rising cost of living due to the inflation threat.

According to the report posted on the Bureau’s website, the value of the kip dropped about 12 percent in January compared to the same period last year, making it difficult for the government to minimise inflation and daily living costs. The significant drop of the kip against the Thai baht has posed challenges in keeping the price of imported goods at a low level. This is because more than 50 percent of the goods on sale in Lao markets are imported from Thailand.

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The Bureau’s report highlights that the Year-on-Year Consumer Price Index (CPI) saw 0.95 percent growth.

Even though the January inflation rate was the lowest in the past 12 months, the inflation trend in Laos is still rising. This poses a serious challenge for the government in controlling the cost of living and people on low incomes will suffer.

The government has suspended its policy to increase civil servants’ salaries this year amid budgetary tension. In addition, the business sector is struggling to expand.  This means people are facing difficulties in earning an income and some may not be able to afford a higher cost of living.

The January Consumer Price Index report also highlights the possibility of the growing inflation threat to the economy and rising living costs if the Bank of the Lao PDR does not come up with concrete measures to stabilise the kip.

The Bank has insisted it is able to keep any fluctuation in the exchange rate within a 5 percent range this year, according to a government guideline on the implementation of the National Socio-Economic Development Plan for 2019.

In addition, the Bank has committed to maintaining foreign currency reserves at a level that enables the purchase of imports for at least three months. A high level of foreign reserves indicates the ability of the central bank to intervene in the case of inflation fluctuation.

Economists have told Vientiane Times on several occasions that one of the best ways to keep inflation low is to boost productivity. However, this is only possible if the business climate improves significantly.