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Dong seen stable, banks have ample dollars
The dollar is expected to stay stable at around VND17,800 in the next month as banks have sufficient dollar holdings following a rare trade surplus in the first quarter, bankers said Monday.
The greenback has risen around 1.6 percent in the past week against the dong after the central bank widened the daily trading band to 5 percent either side of a midpoint, up from 3 percent, effectively allowing the dong to fall 2 percent.
"The forex market performed positively after the central bank decision, with transactions more active and liquidity improving considerably," the central bank said in a weekly report seen Monday.
The interest rate on overnight dollar loans fell 0.11 percent to an average 0.49 percent in the past week, indicating ample dollar funds at banks, the report said.
At 11 a.m. local time, the dollar was bid at about VND17,770, up 1.6 percent from VND17,489 a week ago, Reuters data showed.
On the unofficial market, the dollar was traded at about VND17,850 after briefly touching VND18,000 to the dollar last Tuesday when the new band took effect.
"The market is quite comfortable with the new trading band, which has helped boost trading and improved banks' dollar liquidity," a dealer at a foreign bank in Hanoi said.
A banker in Hanoi added: "The first-quarter macro figures, especially the trade surplus, have been supportive of the dong and so we see the dong stabilizing at around VND17,800 to the dollar over the next month, before April trade figures come out."
Hanoi estimated last week it had a trade surplus of US$1.65 billion in the first quarter of 2009, mainly thanks to a surge in the re-export of gold worth $2.3 billion.
Last week, State Bank Governor Nguyen Van Giau said the bank would allow only a moderate dollar rise this year and warned residents against hoarding the currency.
Giau said Vietnam had more than $20 billion in foreign exchange reserves, down from about $22 billion in February, but he said the banking system, which was holding about $10 billion in dollar deposits, could meet demand.
Economists, however, have said Hanoi would have to let the dong fall further as weak exports and declining foreign investment weighed on the economy.
Hanoi let the tightly controlled currency depreciate by about 8 percent against the dollar last year in the face of tough economic conditions. The currency is down 1.7 percent this year, headed for a second quarterly loss.
The State Treasury raised $230.11 million in auctions of one-, two- and three-year dollar-denominated bonds this month, about $70 million short of its target.
Banks had less appetite for the longer-term paper. Bankers said dollar deposits at most institutions are short-term, hence the higher demand for shorter-term bonds.
Five-year bonds gain
Vietnam’s five-year bonds rose for a fourth day on speculation slowing economic growth increased demand for the relative safety of government debt.
The economy expanded 3.1 percent in the first quarter from a year earlier, the General Statistics Office said March 27, less than half the 7.5 percent pace recorded in the same period in 2008. The government forecasts gross domestic product will rise 6.5 percent this year, while Credit Suisse Group AG predicted March 18 it may be as low as 2 percent.
“The GDP outlook is expected to support bond prices in the long-term,” said Tran Kieu Hung, a Hanoi-based fixed-income trader at Bank for Investment & Development of Vietnam.
The yield on the five-year note dropped 0.025 percent to 9.15 percent as of 3:20 p.m. in Hanoi, according to a daily fixing price from 10 banks compiled by Bloomberg. The securities are poised for a quarterly gain, pushing the yield down 0.085 percent.
Reuters, Bloomberg, thanhnien
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