Jan 30, 2012

Vietnam - US dollar supply at banks in surplus



During the adjacent days of Lunar New Year (Tet) holiday, Vietnam's forex market did not witness many changes. The forex rate on the free market was close to the official forex rate at banking system, the local newspaper Saigon Giai Phong reported.

From middle of January 2012, the US dollar trading situation at banks as well as on the free market has slowed markedly.

Particularly, on January 18, US dollar selling price at commercial banks suddenly slipped to 21,000 dong each, down by 106-116 dong/US dollar from a day earlier. The US dollar price on the free market also dropped to below 21,000 dong each.

Notably, also on January 18, the State Bank of Vietnam (SBV)’s transaction office raised US dollar buying price to 20,850 dong each, up 230 dong from previous days. Facing this situation, some people said that the central bank is buying US dollar for reserve.

In the two following days on January 19 and 20, the quoted US dollar prices at banks continued to fall further by 20 dong in both buying and selling prices.

Leader of a large bank said that the US dollar supply at banks is in surplus and the demand of customers is not very high. The negligible gap between US dollar price on the free market and US dollar price quoted at banks is a strange phenomenon compared to the previous years as the US dollar demand during adjacent days of Lunar New Year (Tet) often surged sharply and the central bank always had to struggle to run the forex rate.

In 2011, the central bank took the initiative and flexibility in operating the forex rate. The continuous adjustments of the interbank forex rate, applying the foreign currency interest rate cap and tightening the foreign currency trading activities have reduced the foreign currency speculation. The strict sanctions for violations of illegal foreign currency transactions are also contributing to reducing the dollarization phenomenon in the economy.

On the other hand, the supply of foreign currency in the economy has also been more abundant thanks to the amount of inward remittances in 2011 was up to $9 billion and other foreign currency flows such as foreign direct investment (FDI) and official development assistance (ODA) still remained positive. Meanwhile, the country’s trade deficit in 2011 was only about $9.8 billion, down 22% compared to 2010.

This is a relatively positive signal on the forex market this year.

VietBiz24



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