Dong depreciates against US dollar

Typically, Techcombank sells dollars at the highest exchange rate of VND21,015 per dollar and buys dollars at 20,910 VND per dollar.

Other commercial banks such as Vietcombank, BIDV, Eximbank and ACB offered selling rates ranging from VND20,980 to VND21,000 per dollar on June 5, up VND40 against the previous day and up VND120 from the middle of last week.

They offered buying rates ranging from VND20,870 to VND20,920 per dollar.

However, the inter-banking exchange rate remains unchanged at VND20,828 since last December up to now.

Representatives of some banks attributed the situation to the fact that the credit institutions are buying dollars to balance the over-sale of dollars in the past and some enterprises want to buy dollars to deal with the mature debts.

They claimed that such adjustments are normal in the operations of the banking systems.

According to a source from the website Vneconomy, the buying-selling rates are VND20,930-20,960 per dollar at the black or unofficial market, up VND70 against one day ago.

In a recently announced report, JPMorgan Chase Bank's Singapore branch said that "before 2008 the central bank adjusted the forex rate 1 per cent lower each year. However, since 2008 on, with economic instabilities, the adjustments on the forex rate took place more frequently. Last year, the forex rate is operated more flexibly with the government's Resolution No 11 to stabilise the macro economy."

"Since the promulgation of Resolution No 11, the dong has been more stable and this year, the local currency has become one of the few regional currencies to appreciate against the US dollar. This positive development takes place in the context of clearly cooling inflation," JP Morgan reported.

According to the JP Morgan report, Vietnam 's inflation cycle did not rise as previous years because the commodity prices plummeted.

Vietnam 's annual inflation as of May 2012 eased to 8.3 per cent, from 18.1 per cent in December 2011. With the easing inflation, the State Bank of Vietnam (SBV) has cut down to a total of 300 percentage points (3 per cent) for key interest rates, interest rate on open market operations (OMO) and deposit interest rate in the past several months.

With an expectation that inflation would slip to the nadir in the third quarter this year, with a 5 per cent forecast and annual inflation maintaining at 6-8 per cent, JPMorgan predicts the central bank would continue to reduce the interest rates by 200-300 percentage points (2-3 per cent) by the end of the third quarter, this year.

Together with the negative credit growth in the first three months of this year (starting growth again in April 2012), JPMorgan expects the Vietnamese government will encourage commercial banks to lend more in the last half of this year.

Earlier, in the beginning of June 2012, Australia New Zealand Banking Group Limited (ANZ) also forecasted the central bank would cut down the interest rate by another 2 per cent and expected a reduction of 1 per cent for interest rates at the end of June or early July.

ANZ also projects the central bank would lower the refinancing rate from 12 per cent to 11 per cent in June and it would be 10 per cent in September 2012. At the same time, it would maintain this interest rate level till June 2013.

" Vietnam's balance of payments position has been improved thanks to decreasing trade deficit as well as an increasing inward remittances and foreign direct investment (FDI) capital inflows," JP Morgan reported.

"Conversely, the unstable balance of payments would prompt people to sell assets in dong to buy US dollars and gold when inflation is high," it said.

However, with cooling prices, the opposite is happening. The capital flows are returning to assets in dong from US dollars and gold. JPMorgan said that Vietnam's foreign currency reserves would continue to increase thanks to maintaining a surplus in balance of payments.

With the aforementioned assessments, JPMorgan forecasts that dong will remain stable against US dollar this year.