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The year-on-year inflation rate surged by 38.46 percent in November.      --Photo Phoonsab Thevongsa

NA questions effectiveness of BOL’s 5-trillion-kip bonds

Lawmakers have queried the effectiveness of the 5-trillion-kip worth of bonds issued by the Bank of the Lao PDR (BOL) in June to attract M2 money back into the banking system.
Members of parliament expressed concern that the bonds, of which 92.28 percent of the total 5-trillion-kip value have been sold, could create even more public debt.
The Governor of the central bank, Dr Bounleua Sinxayvoravong, told the National Assembly that the sale of the bonds (with a tenor of six months) would help to reduce the amount of money in circulation and lessen the amount of money available to buy foreign currency.
The saving bonds offer an annual interest rate of 20 percent, which is attractive not only to individuals but also to businesses.
Dr Bounleua assured Assembly members that the sale of the bonds would slow the depreciation of the kip and would not affect banks’ liquidity.
The central bank governor said the M2 figure increased by 23.98 percent in 2021 compared to the previous year, which was higher than the ceiling rate of not more than 20 percent approved by the Assembly.
Over the past five months, M2 money supply surged by 40.75 percent compared to the previous year. M2 money supply comprises more-or-less liquid assets such as savings deposits that can quickly be converted to cash.
The increasing amount of money circulating in the economy and the depreciation of the kip have driven up the inflation rate in recent months.
In November alone, the year-on-year inflation rate jumped to a new high of 38.46 percent, up from 36.75 percent in October, according to the latest report from the Lao Statistics Bureau. In the first five months of this year, the kip fell in value by 21.28 percent against the US dollar and by 12.99 percent against the Thai baht, according to the central bank governor.
 In addition, the kip/US$ exchange rate jumped to as high as 20,715 kip/dollar and 601.75 kip/baht in the parallel market in the same time period.
 To deal with this situation, the central bank decided to issue bonds worth 5 trillion kip to minimise the damage to the economy and slow the rise in prices.
 The Bank of the Lao PDR applied measures similar to those implemented in response to the Asian financial crisis of 1997-98.
 The Asian financial crisis continued to affect the Lao economy in 1999 and 2000, forcing the central bank to issue bonds with annual interest rates ranging from 20 to 60 percent.
Dr Bounleua said bonds were the safest form of investment and that bond holders would receive the principal and interest rate in line with the designated dates.







By Somsack Pongkhao
 (Latest Update December 20, 2022)

   

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