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Vietnam’s reserves to climb, supporting dong, Viet Capital says
Vietnam’s state-controlled companies are expected to increase the amount of overseas currency they sell to the central bank, boosting the nation’s foreign-exchange reserves and supporting the dong, Viet Capital Securities said.
Prime Minister Nguyen Tan Dung asked state companies last week how they could “hoard US dollars when we are in this difficult situation?” The International Monetary Fund said in December that Vietnam has a low level of foreign reserves, which Citigroup Inc. estimated at $13.6 billion at the end of 2010, down from $23.9 billion two years earlier.
The official exchange rate of the dong was devalued by about 7 percent on Feb. 11, and the currency’s official value as of 9:02 a.m. Hanoi time was 20,878 per dollar. The currency traded as weak as 22,080 per dollar on the black market on Feb. 25, and strengthened to 22,020 Monday, according to a telephone service run by state-owned Vietnam Posts & Telecommunications.
“Sentiment improved on the foreign-exchange market on expectations that Vietnam’s forex reserves will increase once state-owned companies sell their dollars to the state bank,” Marc Djandji, the Ho Chi Minh City-based head of research at Viet Capital, wrote in a note dated Monday.
“We saw the Vietnamese dong strengthen somewhat on the interbank market by the end of the day on Friday,” he wrote, citing an exchange rate of 21,315 per dollar without giving a comparable previous figure.
Confidence in the dong is “fragile” and may be undermined unless Vietnam’s central bank tightens monetary policy more aggressively, according to Citigroup, which predicted last month that the nation’s foreign-exchange reserves would total $13.8 billion at the end of this year and rise to $17.1 billion in 2012.
Trade deficit
Vietnam’s monthly trade deficits have “come off from the recent highs late last year,” Hong Kong-based Johanna Chua and Ben Wei of Citigroup wrote in a note dated Feb. 25. Still, the trade shortfalls are “not yet narrow enough to meaningfully restore confidence in the dong,” they said.
Vietnam recorded a trade deficit of $950 million this month, up from $877 million in January, based on preliminary figures released on Feb. 25 by the General Statistics Office in Hanoi. The deficit for the first two months of 2011 is $1.83 billion, according to the report, down from about $2.4 billion for the same period in 2010, according to calculations by Bloomberg.
The government faces a “pressing need to narrow the trade gap and ease depreciation pressures on the local currency,” wrote Sherman Chan, a Hong Kong-based economist at HSBC Holdings Plc, on Feb. 25.
Thanhnien, Bloomberg
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