The central bank on Wednesday increased the dollar’s buying price to VND21,100 from the VND20,826

The central bank on Wednesday increased the dollar’s buying price to VND21,100 from the VND20,826 it had maintained since late June, asserting there it would not repeat last June’s dong devaluation.

The greenback’s selling price has been kept at the ceiling level of VND21,246 per dollar.
The latest adjustment comes after the monetary authority weakened its dong reference rate by 1 percent to 21,036 per dollar on June 28 to support exports and help revive an economy that grew last year at its slowest pace since at least 2006.
The currency is allowed to diverge by 1 percent from the benchmark rate, which had, prior to the latest devaluation in June, been set at 20,828 since December 2011.

Responding to the latest increase in the dollar’s buying price, economist Nguyen Tri Hieu said it was a common transaction of the central bank. It can increase the dollar’s buying price to be able to purchase big volumes and bolster foreign exchange reserves, recently used for the purpose of importing gold, he said.
The central bank, the nation’s sole gold importer, has held gold auctions since March, selling 1.17 million taels, or about 44 tons, according to bank data. Bidders are mostly banks and jewelers.

The dollar price increase was also aimed at halting the trend of a decrease in the exchange rate, which had negatively affected Vietnam’s export earnings, Hieu said.
At commercial banks, the exchange rate stood at VND21,040-21,060 per dollar, compared to VND21,080-21,090 per dollar early this week.
The higher exchange rate will help increase export values if they are calculated in the local currency, as exporters can convert the dollars they earn from their shipments to Vietnamese dong in the domestic market, he explained.
The central bank has said it has no plans for a repeat of last month’s dong devaluation, the first since 2011, and has pledged to support the currency.
“The State Bank of Vietnam affirms that it isn’t going to adjust the dong-dollar exchange rate and will take determined measures to stabilize the rate,” Deputy Governor Le Minh Hung said in a note posted on the State Bank of Vietnam’s website. “That includes strong intervention,” he said, adding that foreign-exchange reserves “are at high levels.”

The CEO of Eximbank, Truong Van Phuoc, said the central bank is likely to keep the exchange rate unchanged until the end of this year because of a big balance of payment surplus. The central bank has forecast the country will enjoy a $5 billion balance of payments surplus in 2013, easing pressure on the dong.
However, economist Hieu said that if the exchange rate in the black market increases, the central bank will need big foreign currency reserves to intervene. Meanwhile, it also needs to use the reserves to import more gold for its auctions. “With the current national foreign currency reserves, it will not be easy for Vietnam to carry out both tasks at the same time,” he said.

Based on economists’ estimates and government data, Vietnam’s foreign reserves were estimated at around $26 billion at the end of 2012. The exact amount of foreign exchange reserves is not publicly released in Vietnam.
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Vietnam regained macroeconomic stability over the past year, but the economy is progressing at two speeds, says the International Monetary Fund (IMF).

The IMF Executive Board released its Article IV consultation with Vietnam on August 9, saying that the export sector is performing well—especially foreign-invested enterprises—but the domestic sector, though improving, has yet to find a solid footing because of several factors, including low productivity, structure of resource allocation, impaired bank balance sheets, and inefficiency in several state-owned enterprises (SOEs).

Credit growth has picked up modestly in real terms, mostly concentrated in the export-oriented and agricultural sectors. Headline inflation has declined significantly, but underlying pressures persist, said the IMF.

The current account surplus surged to US$9.1 billion in 2012 from US$0.2 billion in 2011 given a slowdown in imports and the strong export performance.

The exchange rate has been stable, and gross international reserves more than doubled in February 2013 from end-2011, although they are still inadequate at about 2½ months of prospective imports.
According to the IMF, during the next two years, the current account surplus is expected to remain sizable, and foreign direct investment (FDI) inflows would remain strong, supporting international reserves. This outlook depends on an improvement in the global economy, broadly unchanged monetary and exchange rate policies, and a measured withdrawal of fiscal stimulus.

The authorities have made significant progress in macroeconomic stabilization and containing vulnerabilities in the banking sector and advancing reforms in the SOE sector. Calm has returned to financial markets after the State Bank of Vietnam (SBV) provided liquidity and facilitated the merger of several small, weak banks over the past two years.

Moreover, the IMF said, to reduce bank balance sheet risks from gold speculation, the SBV has also implemented a measure to stop gold deposit taking and lending activities. While some weak banks cannot meet the required conditions to access the interbank market and must rely on the SBV’s refinancing facility and open market operations for liquidity support when needed, the interbank market’s function has largely been restored. Banking system liquidity has eased, as evidenced by higher deposit growth and significantly lower funding costs.

IMF Executive Directors commended the authorities for significant progress in stabilizing the economy over the past two years, but cautioned that Vietnam faces important internal and external risks in the period ahead.

They underscored the importance of reforming SOEs to enhance Vietnam’s growth potential and reduce fiscal risks. The establishment of a high-level steering committee would be critical to foster SOE restructuring. Equitization of SOEs could be accelerated, and accountability and financial discipline strengthened. Directors encouraged the creation of a level playing field for private and state firms, ensuring equal access to capital, and introducing greater competition into state-dominated sectors, including infrastructure, they added.

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