VIENTIANE, Jun 7 (NNN-KPL) – The Lao central bank, Bank of the Lao P.D.R. (BOL), made changes to its reserve requirement level and base interest rate, as announced by the bank’s governor.
The move is aimed at reducing the amount of money in circulation and curbing the spiraling inflation rate, which was recorded at 9.9 percent in Apr, local daily Vientiane Times, reported.
Governor of BOL, Sonexay Sithphaxay, recently signed a two-page BOL decision, regarding the adjustment to the bank’s reserve requirement.
Under the decision, the reserve requirement will increase from three percent to five percent, for the Lao currency, kip, but will remain at five percent for foreign currencies.
The decision is aimed at ensuring the financial liquidity of the banking system and minimising the risks that could impact the banking sector, while regulating and sustaining the quality of credit, to reflect the reality of the macroeconomic situation.
Raising the reserve requirement means that the central bank can reduce money supply, which should enable it to better control money supply and curb inflation, as well as, respond to the nation’s economic woes.
Over the past two years, the central bank has made two adjustments to its reserve requirement level, in response to the changing needs of the country’s fiscal situation.
In Mar, 2020, the BOL cut the kip reserve requirement from five percent to four percent, and from 10 percent to eight percent for foreign currencies.
In 2021, the bank made another change to its reserve requirement by reducing it from four percent to three percent for kip and from eight percent to five percent for foreign currencies.
With regard to the policy rate change, the bank increased the base interest rate for loans of less than seven days from three percent to 3.1 percent, for loans issued in kip.
In addition, the bank cancelled interest rate on 7-14 day loans and the interest rate on loans issued for periods of 14 days to one year.
The bank said, the adjustment to the base interest rate would serve as an important reference for commercial banks in following the new policy rate.– NNN-KPL
