Dong depreciates again, put under hard pressure

The 13th adjustment in October of the dong/dollar exchange rate made by the State Bank of Vietnam has made the dong lose 0.73 percent of its value since the beginning of October.

On October 27, 2011, the State Bank of Vietnam once again adjusted the dong/dollar exchange rate, with which, the dollar price has increased by 20 dong per dollar to 20,788 dong per dollar. Commercial banks immediately raised the quoted the dollar sale price to 20,996 dong per dollar, the highest possible level, and the purchase price to 20,990 dong per dollar.

The 13th adjustment in October has led to the 0.73 percent depreciation of the dong over the last four weeks. Meanwhile, the Governor of the State Bank of Vietnam on September 7, committed that the dollar price would not increase by more than one percent by the end of the year.

Securities companies have said that the latest dong/dollar exchange rate adjustment is not the good news for the stock market, because investors now have more reasons to believe that the exchange rate would be adjusted further towards the end of the year, which would put harder pressure on the gold prices and make the inflation problem more serious in the last months of 2011.

Deputy Chair of the National Finance Supervision Council Le Xuan Nghia said at a recent workshop in HCM City that if the dong interest rate is forced to decrease, the dong/dollar exchange rate would go on the opposite direction.

“In the next 18 months, the stability of the banking system and the exchange rate would remain the two biggest challenges for the national economy,” Nghia said.

Nghia also said that the “occupy Wall Street” movement, if spreading out and having big impact on the financial sector, may force the global stock markets to impose stricter standards and higher transparency on their operations. If so, this would influence some stock markets in Asia, including Vietnamese, thus causing shocks in gold price and exchange rate.

“Businesses need to pay more attention to the interest rate and exchange rate risk management and should not rely on the market factors which they cannot control,” said Huynh Buu Quang, a senior executive of HSBC Vietnam.

Quang went on to say that the State Bank of Vietnam should show commercial banks how to restrict the lending in foreign currencies which serve unreasonable purposes, and it should drive the exchange rate in a flexible way which is unpredictable to speculators, thus helping ease the speculation.

Analysts have pointed out that the dong/dollar exchange rate now still partially depends on the gold market. Gold is now serving as the place for speculators to shelter amid the high inflation. Where to find enough dollars to satisfy speculators’ thirst for gold? The question makes experts think that it is necessary to tighten the control over the gold market and put the gold transactions into the normal track.

Money has been kept at banks and buried in gold, while the national economy is lacking capital and resources for development. This problem remains unsettled, because bankers believe that gold and foreign currency prices remain unknowns.

The exchange rate has been stabilized at new high peaks over the last week. Meanwhile, the State Bank has vowed to heavily punish illegal foreign currency transactions when raising the fines on the activities by 7-10 times (300-500 million dong). The central bank’s inspectors also regularly tour commercial banks to be sure that the exchange rates applied by commercial banks in transactions are not higher than the ceiling levels.

While the dollar price quoted by commercial banks increased, the black market’s price yesterday October 28 dropped to 21, 300-21,550 dong per dollar, a decrease of 200-250 dong per dollar in comparison with October 27.

In related news, the gold price increased to 44.75-45.05 million dong per tael on October 28.

Source: TBKTSG

Tags: Vietnam banking industry, vietnam dong, Vietnam finance, Vietnam financial