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VND/US$ exchange rate breaks VND17,000/US$1 threshold
The foreign currency market is witnessing the new dollar fever, with the prices exceeding the VND17,000/US$1 threshold yesterday, the scenario that no one could imagine would happen two months ago.
The dollar price officially broke the VND17,000/US$1 yesterday May 26 when it was sold at VND17,050/US$1 on the black market. The record high of VND17,000/US$1 was once made in the first half of May 2006. The price unexpectedly soared to VND17,150/US$1 in the evening of the same day, which was a big surprise even to foreign currency dealers.
On May 26, the VND/US$ interbank exchange rate was VND16,051/US$1, while the rate offered by commercial banks was at VND16,212/US$1.
In fact, the foreign currency market has become hot recently, with the increased demand for dollars. However, the highest peak of the greenback price was only seen yesterday, which, according to analysts, was because the day witnessed a lot of hot news. The inflation rate in May soared again to 3,91%. The trade deficit in the first five months of the year, according to the Ministry of Industry and Trade, has reached $14.4bil. The ‘shocking news’ has immediately pushed up the VND/US$ exchange rate on the black market, which has been tense for some days.
According to the State Bank of Vietnam (SBV), the demand for foreign currencies remains very high, mainly because enterprises need more foreign currencies to import commodities. Meanwhile, the dollar supply has not been improved, that has made the dollar supply and demand imbalance more serious.
The supply and demand imbalance comes from the factors as follows:
First, as SBV said, the demand for dollars to serve the imports has been increasing. The high trade deficit of $14.4bil by May 26 has been further worrying policy makers. This proves to be a hard pressure on the foreign currency reserves.
Two main factors have been cited to explain the high trade deficit: the sharp devaluation of the greenback against most other hard foreign currencies recently; and the increased prices of commodities in the world, which forced enterprises to pay more dollars to import commodities.
The popular solution to such a situation is to diversify payment instruments instead of relying on the dollar as the main currency in payment (the dollar now is used in 70-80% of total import-export transactions of Vietnam).
However, the second most popular currency in payment, the Euro, has also been revaluating sharply (VND1,200/Euro) against the VND since mid May
Second, the tense demand for greenbacks can also be explained by the investment activities of Vietnamese people. They now tend to buy dollars for saving instead of injecting money into the falling stock market, risky gold market, and banks deposits, which cannot bring real positive interest rates.
Analysts said that the investors, who collected dollars in the last week, could get the profit of 2.5%, a very attractive profit in current conditions.
Third, the dollars available in the banking system has become more tense as people do not make US$ deposit at banks, but they keep dollars in hand to make transactions on the black market. The attractive exchange rates in the black market have been preventing the dollars from flowing to banks.
That explained why banks have to raise US$ deposit interest rates continuously. The highest interest rate now available on the market is reportedly at 7.65% per annum for 13-month term deposit, offered by a joint stock bank. Meanwhile, other banks are now offering at 7.5% per annum.
VNN
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