State Bank keeps dong steady against greenback supply

Since peaking this year at VND16,152 per dollar on January 22, the daily VND/USD official exchange rate set by the State Bank has decreased and currently sits at VND16,090.
“It is a real challenge for Vietnam to maintain a stable VND/USD rate, requisite to Vietnam’s export competitiveness and stock exchange stability, with fast-growing foreign indirect investment,” said Phi Dang Minh, State Bank foreign exchange management director.
He declined to give further details, citing the sensitivity of the issue.
Last year, Vietnam’s foreign indirect investment hit $2.5 billion. However, in the first quarter of this year, FII has already touched $1 billion with a booming stock exchange recording 44 per cent growth so far this year.
Vu Quoc Huy, Vietnam Institute of Economic and Development Studies vice head, has forecast that further stock market growth could hamper State Bank plans to keep the dong slightly devalued against the US dollar in 2007, in a bid to maintain national export competitiveness.
Earlier this year, the State Bank planned a 1 per cent depreciation of the dong against the greenback, confirming a declining pattern over 11 consecutive years.
“The State Bank needs to work out new measures soon as regulations approved earlier this year have proven inefficient in clearing up the dollar surplus which can cause the dong’s appreciation,” said Huy.
With decision 2554/QD- NHNN taking effect from January 2, the State Bank has allowed local banks to trade up to 0.5 per cent either side of the State Bank’s daily official exchange rate from 0.25 per cent previously. However, since then, the dollar has been pulled even lower against the dong.
“Trading band extensions alone cannot clear dollar surpluses in almost all commercial banks as State Bank is just buying back dollar moderately,” said Le Dang Khoa, VIBank’s head of foreign exchange department.
According to the State Bank, it could buy back between $70 to $80 million per day. However, the low rate offered has forced the banks to keep hold of US dollars.
In another move to free up the interest rate system, the State Bank has lifted the cap on corporate greenback deposits, facilitating local banks to mobilise dollars from organisations.
However, according to banking experts, as dollar deposit interest rates stand at 5 per cent per year, is much lower than the minimum 8.25 per cent per year applied for Vietnam dong deposits, people tend to convert dollar to Vietnam dong for a better rate. This has partly driven up banks’ dollar surpluses.