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It's not the right time for FX adjustment: SBV
It is not the right time to make any adjustment to the exchange rate as many factors will increase inflationary pressure in the near future, the Monetary Policy Department of the State Bank of Viet Nam have declared.
The decision was made despite economists recently recommending the central bank to devalue the dong by roughly 3-4 per cent in a move to spur exports and improve the competitiveness of local producers.
The department said that it would remain cautious about changing the forex rate as the Government has targeted keeping this year’s inflation lower than in 2012 while stimulating higher economic growth.
They argued that as the pace of price increases accelerated 1.25 per cent in the first month of the year, and was expected to increase further this month in the wake of the Tet holiday effect, any current devaluation of the dong would cause a rise in inflation. Raising the prices of imported goods would also add to inflationary pressure while making it more difficult to repay foreign debts, they said.
However, some economists remain adamant that maintaining the 2012 foreign exchange policy this year may not be as beneficial as it was in recent times.
Nguyen Duc Thnh, director of the Ha Noi-based Vietnam Centre for Economic and Policy Research (VEPR) under the Viet Nam National University in Hanoi, said that the central bank should actively devalue the dong by about three per cent with a 1-1.5 per cent margin implemented throughout the year to support exports and competition. He argued that if imported goods become more expensive then domestic production would be more actively encouraged.
Le Xuan Nghia, former vice chairman of the National Financial Supervisory Committee, said that import demand was expected to rise significantly in the second half of the year when the economy was forecast to rebound. The country at that time would have a trade deficit instead of a trade surplus like now, so he said it would be necessary to adjust the forex rate gradually in favour of exports and restrict imports.
Echoing Nghia, banking expert Nguyen Tri Hieu recommended that rather than devaluing the dong, the central bank should merely allow the exchange rate to fluctuate as much as 3 per cent, adding that the most appropriate timing is within the first quarter of this year.
He stated that this measure would mean the bank would avoid intervening in the foreign exchange market while letting the self-correction mechanism of the market work.
However, he admitted that while the adjustment would benefit exporters, it could also cause instability and a loss of confidence in the dong. He concluded that just as there is no medicine that can cure every disease, there is no solution that can help keep all sectors of the economy healthy, and so some tough measures were necessary.
Over 50,000 local firms reportedly underwent insolvency and dissolution last year and the number of enterprises facing difficulties due to credit is rising.
In 2012 the average inter-bank exchange rate set by the central bank remained stable at VND20,828 per US dollar. The official market exchange rate also remained stable at around VND20,850 per dollar, although at one point the rate shot up to VND 20,820 and VND21,295 per dollar for bid and ask.
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