Vietnam money: dollar demand eases as trade gap drops
07-AUG-2008 Intellasia | Reuters
Aug 7, 2008 - 7:00:00 AM
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Dollar demand has eased slightly in Vietnam in the past week, underlined by the absence of banks' demand to buy the hard currency from the central bank, following signs that the country's trade deficit is narrowing.
The country's trade account has been under massive pressure this year as the price of raw materials soared.
Inflation galloped higher to its highest levels in 17 years.
"During the week the foreign currency supply and demand are relatively stable," the State Bank of Vietnam, the central bank, said in its weekly report.
"Commercial banks did not have demand to buy foreign currencies from the State Bank," it said.
Vietnam's trade gap has shown signs of narrowing in recent months.
It came in at US$800 million in July, larger than June's US$740 million, but less than half the gap seen in May of US$1.9 billion.
Still, reflecting the pressure on trade this year, January-to-July's accumulated deficit was double the same period last year at US$15 billion, government data showed.
The Planning and Investment Ministry also forecast last week that the annual trade deficit this year would widen to between US$19 billion and US$20 billion from a 2007 gap of US$12.4 billion.
Vietnam's dollar supply this year has been partly underpinned by foreign investment flowing into the country.
Disbursement under foreign investment projects in the first seven months jumped 42.9% from a year ago to US$6 billion, the government said last week.
The government has announced measures to narrow the trade deficit by speeding up exports and limiting imports of non-essential commodities.
Banks have cut dollar sales to car importers while the central bank suspended gold imports and cracked down on dollar speculators on the free markets.
As the dong value strengthened, lending rates in the domestic currency also increased even though several banks have announced cheaper loans for long-term customers.
Vietnam's top four lenders offered one-year dong loans at 17-21% on Monday, from 15-20% in mid-July.
Their overnight loan rates widened to 14-20%, from 14-16% on July 28.
Yields on one-year Treasury bills stood at 20% on Monday, unchanged from last Monday but down from 21% on July 21 when the government unexpectedly raised retail fuel prices.
Two-year government bond yields eased to 16.6% from 18.15% a week ago.
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