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Dollar demand soars, but exchange rate will stay stable
Though the dollar price has been increasing in the last few days, bankers still affirm that the VND/US$ exchange rate will remain stable as supply is still good.
Price increases just temporary
The greenback price has unexpectedly risen by VND250/US$1 in the last week – a sharp increase if noting that it had been stable since August 2008.
The price hit the VND17,000/US$1 threshold on October 23 in the afternoon on the black market, considered an abnormal occurrence.
Tran Bac Ha, Chairman of the Bank for Investment and Development of Vietnam (BIDV), said that the demand for dollars has really increased sharply in the last few days. Enterprises need more dollars to import materials to fulfill export orders.
The demand for dollars has been increasing also because some foreign investors, worried about the crises in their home countries, are now trying to get dollars to transfer abroad. Moreover, risks in other investment channels have also prompted people to keep dollars.
Nguyen Phuoc Thanh, General Director of Vietcombank, also said that the dollar price has increased because of a temporary supply and demand imbalance.
Foreign investors have been trying to restructure their investment portfolios and convert VND into foreign currencies. Meanwhile, some importers are purchasing dollars to so they can pay their partners at the end of the year.
In the world’s market, most hard foreign currencies are losing their value against the dollar, especially since the US government began intervening in the financial market.
“The appreciation of the dollar against the VND should not be seen as an abnormal phenomenon of the monetary market. This does not mean that the VND will continue sliding. The VND/US$ exchange rate is defined by the supply and demand basis,” Thanh said.
However, Ha from BIDV said that the exchange rate in the interbank market is not fluctuating heavily, only in the black market. The biggest problem now is the abnormally heavy purchases of dollars by investors, he added.
Thanh said that when some foreign institutions increase dollar purchases, speculators on the black market also try to purchase dollars. This prompts enterprises which plan to purchase dollars to make payments to partners to purchase dollars sooner than planned for fear that prices will soar later. As a result, the demand for dollars increases sharply, heightening the supply and demand imbalance.
State Bank’s intervention? No!
Commercial banks have confirmed the sharp increase in dollar purchases in the last few days. BIDV reportedly sold $70mil in the past two days, $20mil on October 22 and $50mil on October 23. The average sale for September was less than $20 million per day.
Vietcombank previously sold $40-50mil a day. Meanwhile it sold $60mil on October 20. The figures were $122mil on October 21 and $161.6mil on October 22. Foreigners purchased 70% of the dollars.
Both BIDV and Vietcombank have asked their branches to maintain normal purchases and sales. The banks said that they don’t need any support from the State Bank of Vietnam, as the banks’ dollar supply still can meet the demand.
Ha believes that the VND/US$ exchange rate will stabilise in some days. He said that BIDV has not thought of raising US$ deposit interest rates. Meanwhile, Thanh has forecast that the exchange rate will return to normal by early next week at the latest. Enterprises can see that banks are still selling dollars and they will not rush to buy dollars for fear of price increases.
Sources say that banks are now in better condition compared to June and July 2008. Even if foreign investors withdraw their portfolio investment capital, estimated at $3-4bil, to support parent companies that are experiencing crises, Vietnamese banks will still be able to manage. Vietnam now has $21.9bil worth of foreign currency reserves, $1.2bil more than in May 2008.
However, bankers say that the exchange rate will not return to the levels in August and September. Experts say that a suitable exchange rate is VND17,000/US$1.
VNN
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