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Dong drops on surging dollar demand
The dong has fallen against the US dollar in the past few days because of increased demand for the greenback from importers and foreign portfolio investors pulling out of the stock market and repatriating dollars home.
The State Bank of Vietnam (SBV) set the dollar-dong exchange rate slightly lower Friday at VND16,518.
The Bank for Foreign Trade of Vietnam (Vietcombank) was buying the dollar at VND16,810 and selling at VND16,848. Banks are allowed to trade the dollar 2 percent either side of the rate fixed by the SBV.
But on the unofficial market, the dollar was bought at VND16,940, compared to VND16,840 Thursday and VND16,680 at the end of last week. It was sold at VND17,000, up from VND16,900 Thursday.
“The exchange rate in the inter-bank market has increased by VND250 per dollar within a week,” the general director of Vietcombank, Nguyen Phuoc Thanh, said.
He attributed the sharp rise to increased demand for the dollar due to year-end import transactions and withdrawals by foreign portfolio investors.
Vietcombank sold dollars worth US$161.6 million on October 22, up from $66 million on October 17, he said.
Some foreign investors are selling securities and buying dollars, BIDV official Nguyen Manh said. In September they sold stocks worth $750 million.
The bank’s chairman, Tran Bac Ha, explained, “Some portfolio investors, who are worried about the financial crisis in their home countries, want to reduce their foreign investments.
“It [the withdrawal] is common and will not affect the Vietnamese economy.”
Thanh said the dong has depreciated also because of the central bank’s decision to cut its base rate, refinancing rate, and discount rate.
Analysts said the dollar’s strengthening against the dong is part of a global trend. Most major currencies have fallen against the dollar, especially after the US government stepped into the financial market to prevent a crisis.
Bloomberg quoted deputy governor of the SBV, Nguyen Van Binh, as saying the central bank has sufficient foreign currency reserves to stabilize the markets.
Ha said Vietnam has foreign currency reserves of $21.9 billion. Manh said the exchange rate would stabilize in the next few days at VND16,650-16,700 per dollar. BIDV is not considering a hike in interest rates on dollar deposits.
Thanh said the exchange rate would stabilize by early next week, maybe at below VND17,000.
But some gray market sources said they expect the dollar to go up further in the short term on speculation that remittances would be lower than expected and that FDI disbursement would be slower this year due to the global turmoil.
“The government should continue with its policy of ensuring a stable exchange rate because of our large trade deficit and foreign loans,” economist Tran Du Lich said.
At the end of last year, Vietnam’s external debt stood at 32.75 percent of GDP and 42.69 percent of its export revenues.
The forex rate has been stable at around VND16,600 for the past two months. In June the rate suddenly shot up to VND19,000 in the unofficial market.
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CENTRAL BANK SAYS WILL MANAGE EXCHANGE RATE 'FLEXIBLY'
The central bank will manage exchange rates in a “flexible” manner to ensure a stable dong, Nguyen Van Binh, deputy governor of the bank, has promised.
“The dong has been falling in both inter-bank and black markets in the last couple of days,” Binh told investors from European companies in Hanoi Friday. “However, the central bank has sufficient foreign currency reserves to stabilize the markets.”
Binh reiterated the central bank’s October 17 stand on managing the currency as the dong fell to its weakest level in at least 15 years this week after interest rates were cut.
“Some overseas investors have been selling Vietnamese securities, especially government bonds recently” and converting the funds into US dollars, contributing to the weaker dong, Binh said. He added the central bank is financially capable of meeting their demands.
The State Bank of Vietnam on October 20 joined other international central banks in reducing its benchmark interest rate by 1 percent to 13 percent, still the highest in Asia, to help companies and limit the “negative impact” of a possible global recession on the economy.
Source: Bloomberg |
Thanhnien
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