Vietnam - Central bank may adjust forex rate by early 2012: expert

by lexie Tue Nov 08, 2011 11:24 pm

November 8, 2011

Central bank may adjust forex rate by early 2012: expert

Vietnam’s central bank may adjust foreign exchange rate between the Vietnam dong and the US dollar by early 2012, mirroring its move in late 2010, said an expert.

Since the State Bank of Vietnam (SBV) has pledged to regulate the forex rate fluctuation at around 1 percent until the year-end, the market is forecast to see an adjustment by early next year, Le Xuan Nghia, vice chair of the National Financial Supervisory Committee, told Saigon Tiep Thi newspaper.

SBV last month repeatedly raised the interbank average forex rate by up to 0.85 percent, only 0.15 percent below the central bank's commitment.

However, if the central bank had adjusted the forex rate, the adjustment would not be so high as earlier this year, by 8.5 percent on February 11, Nghia said.

The country's international payment balance this year is predicted to be in surplus of $4-5 billion and the inflow of foreign direct investment (FDI) capital into Vietnam may rise 3-4 percent year on year, together with a rise of about 10 percent of inward remittances sent to Vietnam this year, he added.

Nghia also said that the most important task in macroeconomic stability from now till the end of this year is to control the forex rate.

During the last two months, the forex rate in the banking system sometimes touched nearly VND22,000 a US dollar, making the actual US dollar price in the banking system often higher than that on the free market by VND200-400 a US dollar.

Tai Hui, head of the macroeconomic research team in South East Asia of Standard Chartered Bank, has predicted that the official forex rate will be VND22,000 to the US dollar by the end of 2012.

Though the US dollar will depreciate against many regional currencies next year, it will appreciate against the Vietnam dong due to Vietnam’s current account deficit and draining forex reserve, he told Doanh Nhan newspaper.

To ease the pressure on the dong, the central bank should consider maintaining a stabilized high interest rate for the dong to protect investors and dong holders from the devaluating currency.

So, it must choose between offering high depositing rates or curbing inflation as fast as possible to win the hearts of investors and dong holders, he added.

Though the devaluation, in the long-term, may help scale down the trade gap, it will surely be a burden for businesses in the short-term.

As a result, if the central bank has to adjust the forex rate, it should consider a rate that meets the market expectation so that the domestic currency will be stabilized for a longer period of time, he said.

http://www.vietfinancenews.com/2011/11/central-bank-may-adjust-forex-rate-by.html#more