Vietnam - Forex market cools down on higher supply

by lexie Mon Oct 31, 2011 12:08 pm

October 31, 2011

Forex market cools down on higher supply

U.S. dollar exchange rates under the account transfer mode at local banks have reduced within the past three days after soaring to around VND21,700 to the dollar early last week. However, they were still VND300 lower than those actually traded.

A leader of a large bank in HCMC said the lender now sells dollars at VND21,350 each, which is much lower than earlier after it has accessed more supply. Meanwhile, a teller of a small bank said it buys the greenback from enterprises at VND21,200 and sells at VND21,550.

The State Bank of Vietnam last Friday continued to raise the inter-bank rate by VND20 to VND20,803 per dollar, making the rate jump by VND175, or 0.84%, after 14 consecutive hikes within the past two months. Commercial banks also quoted the greenback at over VND21,000 given the permissible trading band of 1%.

However, the bank leader said most banks actually trade dollars at higher prices than listed. “If banks sell the greenback at the levels listed, their reserve will certainly fail to meet dollar demand of enterprises for paying debts and importing goods in the final months of the year. Besides, no bank would dare sell dollars at low prices as exchange rates keep rising now,” the leader said.

Meanwhile, transactions on the HCMC black market were rampant from early last week given the increasing number of dollar buyers. The forex rate on the market shot up to VND21,900 per dollar but then eased to VND21,550 last Saturday.

The Government on October 20 issued new Decree No.95/2011/ND-CP to set higher fines and add new punishments for those who violated foreign exchange and gold trading regulations, stipulating that people caught illegally trading foreign exchange or gold could now be fined as much as VND500 million. The new policy is expected to help stabilize the local forex and gold market and reduce dollarization.

Le Tham Duong, head of Business Faculty of the HCMC Banking University, said the measures along with a draft decree on gold market management recently released have helped stabilize the gold market. This will help avoid impacts from the gold market on forex rates this year, Duong said.

The central bank on October 27 released a document to ask credit institutions and branches of foreign banks to make a detailed report on foreign currency revenue transacted with customers and on the inter-bank market as well as their forex positions.

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