Mar 17, 2013

Vietnam - Central bank sends signal about exchange rate policy in 2013

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VietNamNet Bridge – The dollar price quoted by commercial banks and the price in the black market bounced back earlier this week. However, after that, the dollar price has decreased again. The State Bank has sent noticeable signal about the dong/dollar exchange rate.

On March 5 morning, commercial banks all raised their quoted dollar prices. It was for the second time after Tet holiday the dollar price exceeded the VND21,000 dong per dollar threshold, marching towards the ceiling level of VND21,036 dong per dollar.

However, on March 6, the dollar began depreciating. Banks reduced the quoted price to below VND21,000 per dollar with the quoted price hovering around VND20,980 per dollar.

While experts were busy analyzing the phenomenon to find out the reasons behind the sharp rise of the dollar prices. The State Bank made some adjustments, sending signals to the members of the interbank foreign currency market.

On March 5 and 6, the State Bank unexpectedly reduced the dollar sale prices sharply. A report of the watchdog agency showed that after one year of keeping the dollar ceiling sale price level at VND21,036 per dollar, the level has been lowered to VND20,950 per dollar, which represented a sharp decrease of VND86 per dollar.

As such, the sale prices quoted by the State Bank\s Exchange were lower than that quoted by commercial banks.

Thoi bao Kinh te Vietnam has quoted some experts as saying that the watchdog agency implies that it is ready to sell dollars to stabilize the market at “reasonable” prices instead of the ceiling price. The central bank has also sent a signal that there has been no serious supply and demand imbalance which may cause big changes in the dong/dollar exchange rate.

The analysts said this could be the main reason that has made the dollar price decrease in the last few days.

Le Quang Trung, Acting General Director of VIB Bank, also said on VnExpress that the State Bank has tried to cool the market down by lowering the dollar sale price at the bank’s exchange.

The message the central bank wants to convey is that it would sell dollars at low prices to balance the supply and demand, if necessary. “This is the timely action by the State Bank to intervene the foreign currency market. It once did this in 2012,” Trung commented.

Opinions vary about the factors which have led to the dollar price fluctuations recently.

Some experts believe that the smuggling of gold rings has led to the higher demand for dollars, once traders tried to collect dollars from the public to make payment for the imports.

Meanwhile, others think that some small commercial banks have pushed up the purchases to offset the foreign currencies they used before.

Especially, some have predicted that the dong interest rates would go down further, which would lead to the narrower gap between the dong and the dollar interest rates, and lead to the depreciation of the local currency.

While many economists urged to devaluate the local currency in order to help boost exports, the State Bank has been insisting on its viewpoint of stabilizing the dong/dollar exchange rate, stating that it would make intervention in case big fluctuations occur.

The efforts to stabilize the exchange rate have been backed by the macroeconomic indexes. Vietnam had relatively high trade surplus in the first two months of the year, at $1.7 billion, while the surplus of $3 billion has been forecast for the general balance in 2013.

Compiled by C. V

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