The local currency slid broadly against the US dollar in the first two weeks of this month. The ceiling rate hit 15,910 dong to the dollar by the end of last week, showing a considerable depreciation compared to the stable status in previous months. The average rate was 15,877 dong and 15,884 dong in August and September, respectively. However, it was reported that there was no shortage of foreign currency from commercial banks and all dollar buyers seem to be calm enough to keep the market from a hot state.
It is forecast that the dollar would be traded at around 15,915 dong by the end of this month and 15,950 dong by the end of the year. Some importers have recently paid attention to signing forward contracts to buy foreign currencies against the dong after ignoring this hedging tool for a while. At the moment, they have to pay around 45 dong over spot rate that is considered as forward point for a one-month dollar/dong forward contract. It is 90 dong and 140 dong for two-month and three-month contracts respectively.
Stable dong interest rates Last week saw limited activity for dong money market. There was ample supply of dong liquidity for terms up to one-month. Overnight dong funds were offered at 6.2–6.3%, and one-month dong fund at 7.2%. Banks are starting to take three-month dong funds to cover end of the year payment demand. This week the State Bank of Vietnam pumped 1.4 trillion dong into the system via its open market operations. It looks like that current ample supply of dong liquidity will keep interest rates stable for a while.
The CPI for the first nine-months of 2005 reached 6.8%, higher the target of 6.5%. Experts are concerned that natural disasters happened in the world and rising world market prices will continue to have negative impact on Vietnam’s CPI. It is forecast that the fourth quarter’s CPI might reach 1.8%, pushing the annual rate to 8.6%. This will put more pressure on dong interest rates towards the end of the year.’
This week Vietnam will start marketing its first sovereign bond issue of 10-year bond worth US$500 million. The promotional tour will be held in many places abroad.
This article was written by HSBC Vietnam