The Standard Chartered forecast that the US dollar/dong exchange rate may stand at 19,900 dong per US dollar by the end of this year (higher than 19,600 dong/dollar in its previous report).
By the end of the first quarter in 2011, one US dollar could hover at 20,000 dong and this could be 20,800 dong/dollar by the end of next year, said the UK-owned bank.
Compared with reports made back in July, which was launched by Standard Chartered before the State Bank adjusted the exchange rate, the bank forecasted US dollar/dong exchange rate in 2010 would be down by about 100 dong against the central bank’s former cross rate. However, in 2011, the figure is forecasted to rise sharply from 19,800 dong to 20,800 dong a dollar. This adjustment shows the concern of experts for the price of sliding speed in the next 16 months.
According to Standard Chartered analysts, the depreciation of dong will become a large drag against the central bank and banks’ attempts to lower interest rates, although inflation may be more stable. Credit growth, therefore, will find it more difficult to meet production and business needs. The basic interest rate in dong, according to Standard Chartered, will be at about 10 percent in 2011.
Another difficulty also mentioned by experts is to control prices in late 2010. Accordingly, in order to curb inflation, the government would adopt measures to control prices of products produced by private enterprises and foreign countries if prices are rising highly. Items are expected to apply including industrial inputs (cement, steel, gas, fertilisers, vaccines, animal feeds, coal…) and other essential commodities (salt, milk flour, sugar, rice, paper, books…).
Experts at Standard Chartered said that they did not believe that the government’s price control measures will be effective in cases where there is a continuous increase of global commodity prices. Meanwhile, lasting market distortions would lead to changes in quantity of goods if the market equilibrium can not be achieved through price adjustments.
However, the experts at Standard Chartered are still relatively optimistic of the economic situation in Vietnam late in 2010 with inflation under control and the trade deficit is relatively stable. Depreciation of the dong is expected at 8.5 percent this year (lower than previously forecast at 11.5 percent) during the whole year growth is also determined at 6.7 percent, similar to the government’s forecast.