Exchange rate projected to stabilize in rest of year

Vietnam’s National Financial Supervisory Committee (NFSC) has forecast the exchange rate between the U.S. dollar and the Vietnamese dong will change little in the rest of the year, said Le Xuan Nghia, vice chairman of the committee.

Nghia said that the forecast was based on U.S. inflation and exchange rate with other currencies.

Vietnam’s inflation rate is higher than America’s but the dollar is falling against other currencies, so taking into account a basket of the currencies of 19 countries having trade relations with Vietnam, the real exchange rate has increased inconsiderably, he said.

The committee expects the country’s balance of payments (BOP) will have US$1 billion in surplus though the central bank earlier put the BOP surplus at over US$2 billion this year. For the first time since 2008, Vietnam will have a BOP surplus this year, Nghia said.

Therefore, the exchange rate will not be under any pressure from the BOP, he said.

Nghia noted the Government had began issuing regulations on an official foreign exchange market development plan that is envisaged banning U.S. dollar borrowing and lending operations at banks.

The Government will adopt a scheme for reducing the use of the greenback which would be deployed between 2011 and 2013. In the draft scheme, NFSC proposes letting commercial banks trade the U.S. dollar at negotiated prices based on the average rate at the daily foreign exchange trading session.

Meanwhile, economist Pham Do Chi said at the seminar that his calculation showed the country’s BOP would have a deficit of about US$3 billion this year given the continued big trade gap and that large amounts of foreign currency, especially the dollar, sent to Vietnam to enjoy a higher deposit savings rate might drain from Vietnam due to the U.S. dollar interest rate being capped at 3% by the central bank.

Commenting on this issue, Nghia said, his committee had a different calculation.

Incoming remittances last year amounted to US$8 billion, including a stable annual amount of US$3 billion, US$4 billion from Vietnamese workers abroad, and about US$1 billion remitted home for being deposited at banks due to a high interest rate, he said.

“However, it is not sure the dollar funds raised from overseas remittances will be withdrawn since the dollar interest rate here in Vietnam is still higher than in other countries,” he said.

Given concerns about whether the return of more than 10,000 Vietnamese workers returning from Libya would affect this year’s incoming remittances, Nghia said the committee expected the amount would decline about US$200 million, which he said was trivial.

Earlier, Vo Tri Thanh, head of the Central Institute of Economic Management (CIEM), said international institutes had seen the Vietnamese dong not depreciating over 3% against the U.S. dollar in the remaining months of the year. That is in line with the Government’s expectation to keep the dong attractive.

Talking about the stock market, Nghia said the highest possibility was the stock market would strongly recover by the third quarter this year. Foreign investors are eyeing the stock market given their net buying value in the last four weeks, he said.

He noted that in the last two weeks, the number of foreign securities companies asking for permission to enter Vietnam had grown while the operational stock brokerages with foreign involvement had started widening their networks to other provinces.

However, foreign investment in the stock market is difficult for well-performing companies like Vinamilk and Masan have no room left for more foreign investment, while liquidity of company shares in the prospective sectors like rubber and minerals is very low, Nghia said. Therefore, the Government should issue regulations designed to attract foreign investors, he added.

The committee has suggested the State Securities Commission consider giving greater room to foreign investors to invest in listed firms, adding quality stocks to the market by letting big State-owned corporations go public, and introducing derivative products to improve the market’s liquidity.

Tags: Vietnam banking industry, Vietnam finance, Vietnam financial