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Vietnam reserves fell to $13.6 billion, Citigroup says
Vietnam’s foreign-exchange reserves, the level of which has sparked concerns about the stability of the country’s economy, fell to about $13.6 billion by the end of last year, down from $14.1 billion in September and $23.9 billion in 2008, according to Citigroup Inc.
In December, the International Monetary Fund said Vietnam’s reserves were “low” at 1.8 months of prospective imports at the end of September, without giving an overall figure. Moody’s Investors Service cited Vietnam’s “reduced” level of foreign- exchange reserves as one of the main reasons it downgraded the country’s debt rating in December.
“We expect foreign-exchange reserves will stagnate for longer,” Hong Kong-based Johanna Chua and Ben Wei of Citigroup wrote in a research note dated today. Citigroup anticipates “only a modest recovery in 2011,” they said.
Market expectations of a weaker dong and faster inflation have driven capital flight, Moody’s said last month, predicting that reserves will decline further “under existing policies.”
Vietnam’s reserves have been hurt by a delayed policy response to external imbalances such as the trade deficit, a lack of liquidity in the country’s currency market and “disappointing” foreign investment inflows, Citigroup said.
Foreign-exchange reserves may increase to $13.8 billion this year and $17.1 billion in 2012, Citigroup said.
Interest Rates
Vietnamese interest rates will have to rise further to help boost foreign-exchange reserves, Citigroup said. The State Bank of Vietnam raised its benchmark rate to 9 percent from 8 percent in November, and Citigroup predicted today an increase to 11 percent in the first half.
“Arresting the erosion of foreign-exchange reserves will be a gradual process,” Chua and Wei wrote. “Foreign-exchange pressures persist.”
The dong’s official exchange rate will probably be devalued by another 3 percent in the first quarter, they predicted. The reference rate for the currency, around which the dong is permitted to fluctuate by 3 percent on either side, was cut by 2 percent in August.
The dong’s official rate as of 12:04 p.m. today in Hanoi was 19,498 per dollar, while on the black market it traded today as weak as 21,020, according to a telephone-information service run by the state-owned Vietnam Posts & Telecommunications.
“With a shortage of dollars, arbitraging on gold prices and macro instability, the Vietnamese dong has been under pressure,” Chua and Wei wrote. “Dong confidence is still fragile.”
Bloomberg
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