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State Bank hesitant in purchasing dollars
The State Bank of Vietnam has succeeded in restraining the dong/dollar exchange rate to low levels after applying a series of comprehensive measures. However, it has been warned that if restraining the exchange rate at low levels for too long, this may lead to bad consequences, including the liquidity weakening and higher trade gap.
Only on April 29, the State Bank of Vietnam increased the dollar purchase price by 214 dong per dollar, in comparison with the price of April 28. Prior to that, the central bank kept the purchase prices at low levels for a long time.
The statistics show big gaps between the market prices quoted by Vietcombank and the exchange rates announced by the State Bank’s Exchange, which have existed since early April.
On April 1, Vietcombank sold dollars at 20,915 dong per dollar, while the State Bank announced the purchase price at 20,501 dong per dollar, or 414 dong per dollar lower than the Vietcombank’s rate.
On the next 16 consecutive days, from April 1 to April 22, Vietcombank quoted the sale prices between 20,915 dong and 20,940 dong per dollar. The prices quoted by the State Bank were 20,496 at the lowest and 20,526 dong per dollar at the highest.
On the days from April 25 to April 29, when Vietcombank, because of the low custom, quoted relatively low prices at 20,770 dong, 20,760 dong, 20,590 dong, 20,595 dong per dollar, respectively, the exchange rates announced by the central banks were still low at 20,501 – 20,491 – 20,486, and then increased to 20,700 dong per dollar on April 29.
On May 25, the sale price quoted by Vietcombank moved up to 20,720 dong per dollar, but the central bank’s price was not updated.
Analysts have commented that the State Bank of Vietnam has succeeded in restraining the dong/dollar exchange rate by applying a series of comprehensive measures.
Specifically, the State Bank tightened the monetary policies and withdrew Vietnam dong from circulation, which has made it more costly to keep dollars than Vietnam dong. The too low deposit interest rate for dollars at 3 percent at maximum has made it not attractive to keep dollars. People have been rushing to convert dollars into dong to deposit dong at banks to enjoy the interest rates of 14 percent per annum.
However, analysts have also pointed out that one should not think that the more sharply the dong/dollar exchange rate decreases, the better the foreign currency market will be.
An obvious thing which can be seen on the foreign currency market in recent days; is that though the sellers continuously reduce the sale prices, the buyer still keeps indifferent. In the circumstances, where the State Bank acts as the final and only buyer, the exchange rate has been decreasing for a long time.
“The current dollar price has become too “negative”. They do not truly reflect the market situation,” a banker said.
Some analysts also say they cannot understand why the State Bank has been trying to force the prices to go down so sharply for such a long time. Meanwhile, some others guess that in the context of the high inflation (The CPI in April 2011, increased by 3.32 percent over the previous month), the central bank does not want to put Vietnam dong into circulation to purchase dollars at this moment.
The State Bank has been warned that if the exchange rate continues going down, it will do more harm than good.
A finance expert believes that the exchange rate downward tendency proves to be unsustainable, because there has been no change with the dollar supply. In 2010, Vietnam could earn 3 billion dollars from gold exports, while it will not have the source of earning this year.
Secondly, when the gap between the dong and dollar interest rates is too big, dollar holders will try to sell dollars out, which will “activate” the massive import. Once this happens, this will make the trade gap more serious.
In the first four months of the year, the trade deficit has reached 4.9 billion dollars.
vietnamnet, TBKTVN
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