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 VIETNAM - Dollar demand eases, price decreases

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PostSubject: VIETNAM - Dollar demand eases, price decreases    Wed Feb 08, 2012 2:28 pm

February 8, 2012

Dollar demand eases, price decreases
The dollar price has unexpectedly decreased in recent days. Experts believe that with the current big gap of 10 percent in the dong and dollar interest rates, it is not likely to see the dong depreciate.

Commercial banks, both big and small, all quoted the dollar sale prices at the levels which were lower than the ceiling – the thing that rarely happens in Vietnam.

The interbank exchange rate announced by the State Bank was 20,828 dong per dollar. Meanwhile, on the morning of February 4, Vietcombank quoted the dollar prices at 20,906 and 21,036 dong per dollar (purchase and sale prices). The prices quoted by Vietinbank were at 20,930 dong and 21,000 dong per dollar, while BIDV bought at 20,900 dong and sold at 21,010 dong per dollar.

Other big banks including Eximbank and ACB have also lowered the sale prices to below the ceiling levels.

Especially, some commercial banks even offered to sell dollars at 20,980 dong per dollar only at some moments. Meanwhile, the black market’s price on February 4 stayed firmly at 20,970 dong per dollar (buy) and 21,000 dong (sale).

Nguyen Hong Long, a banking expert said that the dong liquidity has not been good, while there is a big gap between the dong and the dollar interest rates. Therefore, in the context of the stable exchange rate, the demand for keeping dollars is not high. Besides, the dollar supply has increased thanks to the kieu hoi – the overseas remittance.

The latest report about the newly emerging economies in Asia released by ANZ has pointed out that Vietnam’s export turnover in January 2012 decreased by 11.1 percent, while the turnover increased by 8 percent last December. Meanwhile, the import turnover also reduced sharply by 18,7 percent in comparison with December 2011. This has helped ease the trade deficit to 100 million dollars from 270 million dollars in December.

As such, both the export and import growth rates have decreased significantly, while the trade deficit of the month also did not see sharp increase.

“The supply has become more profuse, while the demand remains the same. As a result, the exchange rate is stable and it tends to decrease at this moment,” Long said.

The fact that banks have to sell dollars at the prices lower than the ceiling levels, in the eyes of businesses, means that there are many sellers and few buyers.

However, this is foreseeable. As businesses have just resumed their business after the long Tet holiday, and they have not started their business plans yet.

Le Quoc Phong, General Director of the Binh Dien Fertilizer Company, also said that the company has resumed the normal production, but it has not kicked off detailed business plans.

According to Truong Van Phuoc, General Director of Eximbank, export companies now want to sell the dollars they get from exporting products, because the dong interest rates are now higher than the dollar interest rates.

Besides, the demand for dollars mostly comes from the businesses which need dollars to make payment for imports. Meanwhile, the businesses have borrowed from banks and paid back to banks. All these factors have backed the dollar price decreases.

In principle, there always exists a close relation between the exchange rate and the interest rate. The high interest rate of a currency would help consolidate its firm position.

“Currently, with the dong and dollar interest rate gap of 10 percent, it is not likely to see the dong depreciate,” Phuoc said.

At present, the high interest rate has led to the low demand for credit, which also means that the demand for imports has also decreased. And once the demand for imports decreases, businesses would need less dollars to make payment for the imports. This finally has led to the low demand and the low price of the dollar.


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