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Vietnam dong fall forecast in 3% territory

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Post by lexie Fri Feb 03, 2012 5:14 pm

February 3, 2012

Vietnam dong fall forecast in 3% territory

The exchange rate is seen stable this year given ample supply of foreign currency, fluctuating in the 2-3% range, said economic expert Vu Dinh Anh.

He said optimistic signs on the exchange rate that emerged in late 2011 would enter into this year. Export this year will be adversely affected by continued economic woes, leading to less material import and lower trade deficit, at some VND10 billion, he said, adding this would drag down demand for hard currency.

The U.S. dollar will maintain its position as a strong currency, and may appreciate against other currencies due to the euro zone debt crisis. If inflation was curbed below 10% this year, Vietnamese dong might fall 2-3%.

Regarding foreign investment funds, which strongly support the balance of trade, Anh is uncertain about a surge in foreign indirect investment (FII). Still, he said investors might not withdraw capital from Vietnam because this would not help resolve their problems overseas.

As for foreign direct investment (FDI), he believed disbursements would continue to rise this year, as the capital registered in 2009 and 2010 was hefty and delays in implementation fell last year and following years. He noted an investment shift to the sectors where Vietnam as advantages and which turn out value-added goods would ensure a positive disbursement rate in the coming time.

Given the more attractive interest rates for dong than those for foreign currencies and the stable exchange rate in recent months, Anh expected the public would regain confidence in dong.

He said the pressure to pay debts in foreign currency lessened last year, with the year’s foreign credit growth of 18.7% against 48.45% in 2010. In addition, the central bank governor has promised to keep the exchange rate rise within 2-3%, so the stable rate will make it possible for enterprises to borrow foreign currency and then convert it into dong.

The exchange rate will be guaranteed until the end of the third quarter.

The demand for foreign currency for import has declined given the continued economic problems.

He said the biggest pressure on inflation this year would be power and fuel prices.

January inflation has recently been announced at 1%. If inflation also rose slightly in March and April, it would be possible to keep the year’s inflation below 10%, he predicted.


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