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 VIETNAM - National Assembly's report predicts continued dong depreciation

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PostSubject: VIETNAM - National Assembly's report predicts continued dong depreciation    Mon Dec 26, 2011 5:33 pm

December 26, 2011

National Assembly's report predicts continued dong depreciation

The VN dong may continue to depreciate against the US dollar early next year, said a report of the National Assembly Economic Committee.

The report conducted by a team headed by Chairman Nguyen Van Giau of the economic committee gave comments on the trend of the Vietnam dong depreciating against the U.S. dollar in the upcoming time, including early 2012.

The pressure was attributed to different factors, including inflation, trade deficit, foreign currency credit growth and money speculation.

The research remarked that in the final months of 2011, the forex market witnessed a rapid rise in demand for foreign currencies, dominantly the U.S. dollar to repay matured loans, or import goods, especially gold, for the year-end season given the price gap between local and global gold.

The rising demand for foreign currency was also ascribed to the surge in foreign currency deposit rates to above 5 percenr per year, as well as speculation activities.

In addition, foreign currency supply has declined as enterprises were afraid to sell their foreign currencies to the banks for fear that the central bank would continue to devaluate dong.

The NA economic committee suggested that policymakers should further pledge to follow market trends in forex management to regain market confidence.

According to the research, the VN dong was overvalued by some 20 percent in mid-2010, but had experienced a volatile period with a devaluation of 20 percent before the global economic crisis occurred in late 2008.

Both high valuation and strong volatility could have left a negative impact on the local economy, as the former might adversely affect the competitiveness of Vietnam on the world market, while upheaval on the forex market could deal a blow to the macro economy and erode public confidence in the local currency.

The research also indicated 3 issues about the central bank’s policies that are worth considering.

First of all, the economic committee questioned if the aforesaid forex discrepancy resulted from an intended management policy to achieve certain goals.

Also, the report authors wondered if policymakers were aware of the discrepancy and what measures they had taken to lessen the forex and volatility as well as their consequences. Lastly, the research raised a question about the impact of such discrepancy on overall macro-economic situations.

The report, however, recommended continuing to discuss these issues. The research conducted by the NA Economic Committee with the assistance from the United Nations Development Program (UNDP) will be sent to NA deputies at the next meeting.


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