What will be the exchange rate like by the year end?

Published: 31/05/2011 05:00



The US dollar prices have been stabilized and decreasing over the last month. Most experts, both foreign and Vietnamese, believe that the dong/dollar exchange rate will be stabilized towards the end of the year, though they still can see risks.

Tran Du Lich, a well-known economist in Vietnam, said at the workshop discussing the impacts of macroeconomic policies on small and medium enterprises held by VIB Bank on May 27, that Vietnam’s overall balance may be positive (+) one billion dollars if the government manages the national economy well.

According to Lich, the US dollar price would hover around 21,000 dong per dollar by the end of the year. “If I have US dollars now, I would sell dollars for dong to deposit at banks to enjoy the interest rate of 14 percent, and then I would purchase dollars again by the end of the year, which would bring profits,” he said.

Meanwhile, a deputy general director of a joint stock bank said on Thoi bao Kinh te Saigon, that Lich proves to be too optimistic when saying so. The banker thinks that the US dollar price would be around 21,500 dong per dollar by the end of the year. He has also predicted that the pressure on the exchange rate would return in the third and fourth quarters of the year.

He explained that Vietnam is still importing more than it is exporting to other countries. Many Vietnamese enterprises are borrowing dollars to sell for dong to do business, and they wait for the money to come to pay bank debts.

As such, a volume of foreign currency of the future has been “borrowed” to be used at present. Therefore, in the third and fourth quarters, when the foreign currency demand does not increase, but the supply decreases, this will put a hard pressure on the exchange rate

How high the dong/dollar exchange rate would be would depend on the interest rate policy of the State Bank. If the gap between the dong and dollar interest rates is attractive enough, people would continue keeping dong, but if the gap gets narrower, it is very likely that people would keep their assets in dollars.

The banker said that the current high interest rates would not exist for a long time, because no enterprise wants to borrow money at such high interest rates. Therefore, it may happen that the gap between the dong and dollar interest rates would be narrowed.

A newly released report by the Hong Kong and Shanghai Banking Corporation HSBC pointed out that the increasingly high trade gap would influence the confidence on the market, and once again, would create a pressure on the local currency which has been stabilized recently.

Vietnam’s export growth rate in May reached 18.9 percent, while the import growth rate reached 28.1 percent, which has made the trade gap in May at 1.7 billion dollars, the highest peak in the last 17 months.

Trade gap is also the problem warned by Standard Chartered Bank. In its latest report, the bank predicted that the dong/dollar exchange rate would be 21,800 dong per dollar by the end of the year.

Even though the market has had good responses to the government’s policies on stabilizing the local currency over the last few weeks, the bank still can see risks which may make the inflation situation get worse.

If the measures taken by the government to stabilize the market do not bring the desired effects, the bank thinks that there would be a slight price decrease of the dong against the US dollar in the third quarter. Experts believe that the problems of interest rates and exchange rate in Vietnam would not be settled until Vietnam can settle the trade deficit problem.

According to Nguoi lao dong, the interbank exchange rate late last week dropped to the deepest low of 20,643 dong per dollar since February 11, the day when the State Bank released the decision on adjusting the dollar price flexibly in accordance with the market supply and demand.

The dollar prices quoted by commercial banks have also decreased. Many banks purchase dollars at 20,510 dong per dollar and sell at 20,610 dong. Especially, they purchase dollar cash at 20,460 dong per dollar only. The dollar price on the black market has also dropped to 20,500 dong per dollar.

Though commercial banks have been slashing the dollar prices, the number of people selling dollars to the banks still increases.

C. V

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