It’s now the right time to keep Vietnam dong

by lexie Tue Feb 21, 2012 10:02 am

February 21, 2012

It’s now the right time to keep Vietnam dong

The State Bank of Vietnam had kept the dong/dollar interbank exchange rate at 20,828 dong per dollar for the 39th consecutive day by late last week. The exchange rate stabilization has prompted people to sell dollars and keep dong.

Nguyen Ngoc Lan in Hoan Kiem district in Hanoi on February 16 morning came to Eximbank to ask about the dollar prices, planning to covert the dollar deposits at the bank to dong deposits.

Lan said that the central bank has been keeping the exchange rate unchanged for the last 40 days, which means that the exchange rate would be stable in the time to come. Therefore, Lan decided to sell the dollars she has to buy dong to deposit at banks. While the dollar deposit interest rates stay at two percent per annum, the dong deposit interest rate is 14 percent per annum. Therefore, it would be more profitable to deposit in dong than in dollar.

On February 16, Vietcombank quoted its buy price at 20,810 dong per dollar and sale price at 20,870 dong per dollar, a decrease of 10 dong in comparison with the prices of the day before. At Asia Commercial Bank ACB, the quoted prices were 20,800-20,860 dong per dollar (buy and sale).

On the black market, a foreign currency exchange shop on Ha Trung Street in Hanoi informed the prices at 20,800-20,830 dong per dollar, lower than the prices of the day before at 20,810-20,840 dong per dollar.

Analysts have commented that the big gap between the dong and dollar interest rates and the promise to control the exchange rate fluctuation within 2-3 percent both have encouraged people to convert dollars for dong.

On February 14, the State Bank announced that it has been buying foreign currencies, while the current favorable conditions have been facilitating the purchases.

The bank said that the foreign currency liquidity of the banking system has improved since January 2012, while banks have sold more foreign currencies to the State Bank. The foreign currency positions of commercial banks have been “slightly positive” since they came back to operation after the Tet holiday.

The purchases in large quantities by the State Bank are believed to help increase the foreign currency reserves further after the considerable increase in 2011.

Le Quang Trung, Deputy General Director of VIB, believes that the pressure on the foreign exchange rate would not be too hard. In principle, the timely and direct intervention by the State Bank has helped ease the pressure on the market and ease the price expectations.

In the past, the central bank sometimes had to devaluate the local currency by 5 percent, 7 percent or 10 percent, depending on the supply and demand. Once the supply was short, the exchange rate expectations increased.

“I believe that in 2012, the new method of market regulation would make the market go smoothly and avoid jolts,” Trung said.

He went on to say that the supply of foreign currencies would continue increasing in 2012 because the exports would continue increasing. The foreign direct investment keeps flowing to Vietnam, while overseas remittance would also increase. Besides, when the inflation is high, the gap between dollar and the dong interest rates is big, the value of the local currency would be maintained, because the depreciation would be offset by the interest rate. The factors would make people feel more optimistic about the local currency.

Especially, Deputy Governor of the State Bank Nguyen Dong Tien has committed that the central bank would keep strict control over the gold market, the market which usually has big impacts on the foreign currency market.

http://www.vietfinancenews.com/2012/02/its-now-right-time-to-keep-vietnam-dong.html#more