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HSBC sees dong lower, SBV vows to bolster it
The Vietnam dong will be the only currency in the region to fall against the US dollar following the downgrading of the US's debt rating by S&P, according to a report by HSBC.
It would fall from the current VND20,800 levels to VND21,500 to a dollar and remain there until the end of Q2 next year, HSBC said in its August 2011 report on money market prospects.
However, the State Bank of Vietnam has been reported as planning to strengthen the dong in the next four months to protect the value of the domestic currency.
Thoi Bao Kinh Te Sai Gon newspaper quoted new SBV governor Nguyen Van Binh as saying the real value of the dong “has risen slightly since February.” "The primary target of foreign exchange policy is to stabilize the dong and keep it under control, not to fix it. Confidence in the domestic currency has been fading and we must immediately restore that confidence, which is vital to economic stability."
Binh advised the public that holding on to the dong was the best policy.
Strategies to protect the dong would include deposit interest rate reform that created predictable interest rates at levels of around 14 percent for the dong and 2 percent for the dollar, he said.
The central bank has bought over $4 billion in the year to date.
At the Consultative Group Meeting in June, the International Monetary Fund estimated Vietnam’s foreign reserves at $13.5 billion, or equivalent to 1.5 months’ imports.
A report from the Asian Development Bank last month said Vietnam’s forex reserves covered 1.6 months of imports.
On August 16 banks bought the greenback at around VND20,750 and sold it at VND20,824, while on the black market it was almost VND21,000.
On August 9, when domestic gold prices soared to an all-time record of VND46 million ($2,203) per tael of 37.5 grams, the dollar traded at VND21,300 on the black market and around VND20,810 at banks.
But market observers are awaiting concrete action from the SBV. In June 2009 then SBV governor Nguyen Van Giau also made a similar claim but by November the central bank had devalued the dong by 5 percent.
The HSBC report said the dollar would otherwise depreciate against South Asian currencies.
In North Asia, it predicted the Chinese yuan to rise to 6.4 to the dollar by Q3 this year and 6.25 by Q2 next year.
However, despite this, the greenback would not soon lose its reserve currency status since holding the dollar was still common and necessary in the global financial system.
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