Forex rates to remain under pressure

18-Aug-2015 Intellasia | Bizhub | 6:00 AM Print This Post

One of the prominent economic happenings globally in recent times is the appreciation of the US dollar, which has affected most countries including Vietnam.

The greenback has strengthened relentlessly against most major currencies including the euro and yen.

The US Dollar Index, an index of the currency’s value relative to a basket of foreign currencies, has sometimes crossed 100 points, much higher than the 80s where it had hovered for several years.

The forex rate in Vietnam has been affected not only by this appreciation of the dollar but also by several other factors at home and abroad.

The State Bank of Vietnam doubled the daily dong trading band to 2 per cent on either side on August 12 as China devalued its yuan by a total of nearly 5 per cent against the US dollar.

Rising imports combined with sluggish export growth has sent Vietnam’s trade deficit in the year-to-date soaring to $3.37 billion, a year-on -year increase of 16.4 per cent.

The flow of foreign currencies into Vietnam so far this year has also been very modest, with overseas remittances estimated at $13-14 billion in the first half and foreign direct investment at $6.3 billion.

Meanwhile, the large gap between global and domestic gold prices has spurred the illegal import of gold and thus an outflow of dollars.

All these have hit liquidity in the foreign exchange market and therefore the dollar has surged. On August 5 the buying/selling rates on the free market increased by VND20 and 30 to VND21,910 and VND21,930.

After remaining stable for a few days, the price resumed its rise due to the yuan depreciation.

On August 12 all banks raised their dollar selling rates by around VND200 after the central bank decided to double the trading band.

Vietcombank bought and sold at VND21,990 and VND22,060, and BIDV at VND22,000 and VND22,080.

The rising rate benefits some and disadvantages others in Vietnam. Obviously, straightaway, a weakening dong has benefited exporters and hit importers badly.

Yet it is not a windfall for exporters since they depend on imports for their production.

The government as well as businesses now have to pay more to service for their foreign-currency loans.

Analysts said the forex rate is likely to remain under real pressure. This is because businesses’ import of machinery and equipment usually increases in the last few months of the year. This demand is expected to be high this year since the economy has shown clear signs of recovery, spurring large demand for the greenback.

Analysts also warned of a possibility that the US’s Federal Reserve would raise interest later this year, which would cause the dollar to further strengthen.

But they believed that the Vietnamese central bank would keep its promise that the dong would not depreciate by more than 2 per cent this year since the country’s foreign currency and gold reserves are still rather plentiful at $37 billion and 10 tonnes.


Category: Finance, Vietnam

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