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Vietnamese dong will depreciate no more than 5-6%: SBV
The foreign currency market has become tense with the demand for dollars increasing dramatically. Commercial banks have abundant dollars to lend, while they lack dollars to sell. Deputy Governor of the State Bank of Vietnam (SBV) Nguyen Thanh Binh talked about the issues.
Binh said:
The foreign currency market has become tense in the last three weeks with the demand for dollars exceeding the supply capability of commercial banks.
Just one month after SBV widened the trading band from +/-3% to +/-5%, commercial banks have to quote both purchase and sale prices at the ceiling levels. It is true that some businesses complain that it is difficult to purchase dollars from banks or they have to purchase at exchange rates higher than the ceiling levels.
After many years of witnessing a trade deficit, Vietnam had a trade surplus in the first four months of the year, while surplus could be seen in both the trade and current balance. What are the reasons behind the shortage of foreign currencies then?
There are several reasons behind this. People think that the national economy will still have to cope with great difficulties, and they fear that the foreign currency supply will decrease.
The thought has led to concerns about the possible devaluation of the Vietnamese dong, which has prompted people to hoard foreign currencies. Export companies, which have earnings in foreign currencies, keep foreign currencies in accounts, or just sell foreign currencies in dribs and drabs.
Meanwhile, import companies are rushing to purchase foreign currencies also for fear of a dollar price increase. At the same time, a lot of people are rushing to covert deposits in Vietnamese dong into US$ deposits.
Moreover, the 4% interest rate subsidy programme has prompted businesses to borrow in Vietnamese dong instead of dollars. Even enterprises which have a demand for foreign currencies to make payments for imports borrow in dong and then purchase dollars from banks to make payment. As a result, commercial banks have abundant dollars to lend, but lack dollars to sell.
What has the State Bank of Vietnam been doing to deal with the problems?
We have decided to implement three measures at the same time: providing official information to the public; using economic tools and measures; and taking action to fight speculation.
I can say for sure that even in the worst scenario, the payment balance deficit will be $2.5 billion only. Meanwhile, Vietnam’s foreign currency reserves remain high at $20 billion, which is high enough to cover the payment balance deficit.
Regarding the exchange rate, the Vietnamese dong will not lose more than 5-6% of its value.
To date, the State Bank has allowed the dong to depreciate by 5% in an effort to encourage exports. Therefore, we can say that the State Bank has granted an ‘exchange rate quota’ for all of 2009.
Currently, US$ deposit interest rates are hovering around 2-3%. In fact, banks want to lower the interest rates because they have few clients who want to borrow in US$, but they are still listening for more news before making decisions.
The State Bank will work with commercial banks through the Vietnam Banking Association to help them reach a consensus. It will give guidance to credit institutions so that they can apply reasonable deposit interest rates for institutions which have earnings in foreign currencies.
VietNamNet, TP
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