Devaluation to start a chain reaction

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Tien Phong Plastic JSC (NTP), which imports up to 70 per cent input for its products, said the devaluation had not greatly affected its business.

Tran Van Phuc, chairman of NTP, said his company actually had to purchase US dollars at the price higher than the official rate for recent months.

In fact, local enterprises which import goods were in the same situation as NTP, as they had to buy US dollars at around VND21,000 for a long time before the central bank officially raised the exchange rate.

Meanwhile, the devaluation is benefiting export enterprises. Minh Phu Seafood JSC (MPC) said it was gaining from its inventories and accounts receivable which would be paid in US dollars.

Phu added that the exchange rate rise could help his company be more competitive to foreign partners, which encourage the exporter extend its production.

Regard to the impacts on the foreign investment in Vietnam,  Kinh Bac City Development Corporation chairman Dang Thanh Tam was positive.

Tam said foreigners had held back their cash on expectations of the devaluation. But when dong had been officially lowered now, it would be the right time for them to disburse.

On the other hand, central bank’s move to devalue the local currency triggered  potential price rises of many basic commodities, among them, petroleum products, fertilisers and steel prices.

The exchange rate hike is particularly weighing on the local petroleum enterprises, who had already suffered losses of some VND2,300 per petrol litre.

Meanwhile, the market is also eyeing the government’s move to adjust power prices, of which the possibility that power prices will rise by 18 per cent since the beginning of this March is most likely to happen.

The central bank’s devaluation is also believed as paving the way for a next rise in interest rates.

The low ceiling deposit rate set by the State Bank is significantly restraining small commercial banks from mobilising capital. Those small banks meanwhile can hardly compete with state-owned banks, which have great capital ability thanks to the cheap deposits of state-owned enterprises.