Vietnam needs higher forex reserves

by lexie Sun Oct 23, 2011 8:29 am

October 22, 2011

Vietnam needs higher forex reserves

Vietnam’s foreign exchange reserves are estimated to be higher than earlier this year but are yet to reach the safe threshold, said the National Financial Supervisory Commission.

The forex reserves may be equal to 7.5 weeks of import cover compared to 3.5 weeks earlier this year, but they should cover 12 to 13 weeks of imports, Le Xuan Nghia, vice chairman of the commission, said this week.

After the central bank sold a large volume of foreign currencies within the past two weeks to cool down the exchange rate, financial experts are concerned that the move could pile pressure on foreign reserves and the central bank’s commitment to keep the exchange rate fluctuation under 1 percent from now to the end of this year.

However, Nghia said the government would be able to stabilize the exchange rate as pledged.

The balance of payments is expected to see a surplus of US$4-5 billion this year, which is the first time since 2007.

This is an important foundation to keep the exchange rate at the pledged level, Nghia said.

“As the nation has a drastic fight against inflation, we cannot let the exchange rate rise as sharply as in previous years. Local businesses can feel secure as mild revisions of the exchange rate don’t really matter,” he said.

One of the factors pressuring the exchange rate in recent days is that foreign currency deposits have been $7 billion lower than the amount lent out as of the end of September.

Local corporate borrowers are trying to buy dollars to repay their foreign currency loans.The central bank, however, is willing to sell dollars to meet the high demand.

The bank will keep only the balance of payments surplus to stabilize the forex market, Nghia said.

Vietnam’s trade gap has fallen sharply, remittance is positive and capital accounts have a surplus of around $9 billion.

http://www.vietfinancenews.com/2011/10/vietnam-needs-higher-forex-reserves.html#more