Market shows signals of short dollar supply

August 24, 2011



Market shows signals of short dollar supply




The dollar prices quoted by commercial banks have been kept at the ceiling levels over the last consecutive 10 days, which shows that the pressure on the dong/dollar exchange rate not only comes from the quotas to import gold granted by the State Bank of Vietnam.

Prior to August 11, the dollar price quoted by the Vietnam Bank for Foreign Trade (Vietcombank) had always been kept at the levels below the ceiling levels allowed by the State Bank, while the margin between the purchase and sale prices was relatively big, at 80 dong per dollar. The bank closing purchase dollar price was 20,375 dong per dollar on August 10, while the sale price was 20,815 dong per dollar.


Since August 11, when companies kicked off the plan to import five tons of gold as allowed by the central bank, the margin has been narrowed to 10 dong per dollar, while both the sale and purchase prices have been increasing sharply. Since then, the sale prices have always been kept at 20,824 dong per dollar, or at the ceiling level – one percent higher than the interbank exchange rate 20,618 dong per dollar announced by the State Bank.


The black market has also become bustling again after a long period of keeping quiet, with the prices having increased since late last week, approaching to the 21,000 dong per dollar threshold in HCM City. The dollar prices have been hovering around 20,870-20,970 dong per dollar (purchase and sale). In Hanoi, the dollar price has surged to 20,940-20,960 dong per dollar.


Dollar exchange shops have opened again after a lot of months of halting operation, due to the tight control of the central bank’s inspectors. The exchange shops on Ha Trung Street in Hoan Kiem district begin quoting prices at 9 am every day. The black price once climbed to 21,150-21,300 dong per dollar, when the State Bank just announced the granting of quotas for importing gold.


In fact, at many bank transaction points, the quoted dollar prices are not the actual transaction prices. Some businesses have reported that the dollar prices applied by some banks have exceeded the ceiling level, because banks charge additional fees on buyers.


“The pressure on the exchange rate has appeared,” said General Director of a joint stock bank said.


According to him, the demand for dollars has been increasing since investors are collecting dollars to import gold to sell for profits at the time when the gold prices keep rising, which has put pressure on the exchange rate.


He also said that the demand for dollars always increases in the last months of years, because enterprises need dollars to import materials for the year-end production season. Also, a lot of foreign institutions want to purchase dollars to transfer their profits abroad.


The banker went on to say that if the State Bank of Vietnam succeeds in forcing the dong interest rates down, there would be a wave of businesses shifting to borrow in dong instead of the foreign currencies. However, first of all, they would have to buy dollars to terminate the existing debts, which would also put a hard pressure on the exchange rate.


Sharing the same view with the banker, Nguyen Duc Huong, Deputy Chair of the Lien Viet Post Bank, also said that the pressure on the exchange rate has become harder.


The gold price increase has led to the foreign currency price increase, which will also affect the real estate and securities sectors.


Dr Le Xuan Nghia, Deputy Chair of the National Finance Supervision Council, has warned that the rising outstanding loans in foreign currencies (in the first six months of the year, the outstanding loans in foreign currencies increased by 23 percent).


In general, businesses pay debts 3-6 months after the day of borrowing. If so, the demand for dollars would increase sharply at the same time, when businesses rush to buy dollars to pay debts. This may lead to the dollar price increases.


“The pressure will come down, and the signs of the pressure have appeared already,” Nghia said.


http://www.vietfinancenews.com/2011/08/market-shows-signals-of-short-dollar.html