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Central bank assures stable exchange rates
The central bank said Tuesday it would work to keep foreign exchange rates stable this year as part of efforts to prevent an economic slowdown.
The comment by Deputy Governor of the State Bank of Vietnam, Nguyen Van Binh, came after a dramatic year last year when authorities let the closely-managed dong depreciate twice and widened its daily trading band three times to help the economy out of an economic slump.
"The objective of foreign exchange policy management in 2009 is stability, to create market confidence and contribute to the recovery of the macro economy," Binh said in a central bank report.
The bank would "apply all measures" to keep the mid-point of the dollar/dong exchange rate in 2009 stable at around VND16,989 per dollar, the rate it set when devaluing the currency by 3 percent on December 25.
The dong is permitted to trade 3 percent either side of a level set by the central bank each day.
But Binh acknowledged that the global economic slowdown would hurt Vietnam's main sources of foreign currency like exports, foreign direct investment (FDI) and remittances from Vietnamese living abroad.
Economic growth slowed to 6.2 percent last year from 8.5 percent in 2007. The government hopes to keep it at 6-6.5 percent this year, though the International Monetary Fund and others forecast growth to be closer to 5 percent.
The central bank has repeatedly said its first priority in 2009 is to help the government stave off an economic downturn.
"Monetary policy this year will closely pursue the objective of preventing an economic slowdown and containing inflation at a reasonable level," Governor Nguyen Van Giau said in a separate statement issued on Tuesday.
“To that end, the central bank will continue to manage foreign-exchange rates and interest rates in a flexible manner,” he said.
Policymakers on January 23 cut the benchmark rate to 7 percent from 8.5 percent, halving interest rates since October as gross domestic product expanded 6.2 percent in 2008.
Binh said the central bank and ministries had looked at various scenarios for the economy.
"But under all circumstances the government is completely capable of balancing foreign exchange supply to serve demand to boost the economy," he assured.
Prime Minister Nguyen Tan Dung said last week there is no need to devalue the dong because there is a plentiful supply of dollars in the banking system and any devaluation would affect the country's foreign debt position.
The government let the currency depreciate by about 8 percent against the dollar last year in the face of tough economic conditions, and economists expected it to allow it to slip further this year to support exports.
The dong could also depreciate due to a decline in exports, tighter FDI inflows and lower inward remittances.
Giau has said foreign reserves stood at US$22 billion in early February, slightly up from $21.9 billion estimated last October.
The dong may fall to VND18,500 per dollar as the slowdown in exports and FDI, overseas remittances and tourist arrivals threaten to lower the supply of dollars, Thoi Bao Kinh Te Vietnam newspaper reported on February 6, without citing sources.
Demand for the dong is falling as interest rates are cut, Tran Quang Minh, head of the currency trading desk at Saigon Thuong Tin Commercial Joint-Stock Bank in Ho Chi Minh City, said on February 6.
Dong deposits at banks fell 0.5 percent last month from a year earlier, while foreign-currency deposits increased 2.3 percent, official figures show.
Pledges of FDI in January fell 88 percent from a year earlier to $200 million, according to the Ministry of Planning and Investment. Exports plunged 24 percent last month to $3.8 billion, according to an official estimate
VNA, Thanh nien
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