Vietnam’s trade gap may rise to $16b if forex rate continues to fall
The Vietnamese dong is currently appreciating against not only the US dollar but also Chinese Yuan, while up to 90% of Vietnam’s trade gap is from China.
On June 14, the interbank average forex rate was quoted at 20,618 dong/US dollar, marking the lowest level in past three months.
Once the US dollar price continues to fall strongly, the trade deficit will be likely braoden, Cao Cu Boi, an economist said.
PhD Pham Do Chi said that currently the dong is appreciating against not only US dollar but also the Chinese Yuan. Meanwhile, up to 90% of Vietnam’s trade gap is from China. In the first five months of this year, Vietnam’s trade deficit was up to $6.5 billion. With this momentum, by the end of this year, the country’s trade gap would be $16 billion. The pressure will weigh heavily on the balance of payments and the forex rate will fluctuate by the year-end.
Chi opined that the forex rate should be adjusted at 21,000 dong/US dollar. To reach this level, the State Bank of Vietnam (SBV) should continue to tighten the interest rate but regulate flexibly.
On May 23, Vietnam Association of Financial Investors (Vafi) petitioned the central bank to lower the US dollar saving rate to zero percent, this also contributed to the depreciation of the US dollar.
“This is a suitable solution to draw foreign currency into the banks, on the other hand raise the value of the dong whereby the depositors will sell US dollar to make dong deposits. But this solution should be applied gradually so that the US dollar value is not too low and the dong value is not being pushed up too high” Chi said.
But it is only a temporary solution, in the long term, the government should still aim to reduce inflation, Chi added. – Vietbiz24
Tags: Vietnam trade, Vietnam trade deficit 2011