Fluid FX needed for exporters

The State Bank, committed to keep the exchange rate fluctuating within 2-3 per cent this year, has successfully stabilised the foreign exchange market, limited dollarisation and dollar speculation.
However, exporters have been left out in the cold.

The current exchange rate is VND20,828 per dollar, the same rate since the end of December 2011.
Dao Van Hung, a member of the National Advisory Council for Monetary Policies, said keeping exchange rate within a 3 per cent fluctuation band would reduce domestic export enterprises’ competitiveness, making it difficult to stimulate exports.

Former Minister of Trade Truong Dinh Tuyen said the 3 per cent band did not truly reflect market demand and supply “It is necessary to loosen the exchange rate margin so it can be adjusted by the market, then we can measure the exchange rate objectively,” said Tuyen.

Moreover, loosening the exchange rate will help relieve enterprises’ pressures to pay back USD loans, which often come due at the year’s end. Normally, when enterprises borrow USD from banks to make payments for imports or deferred purchases from the foreign sellers, they often pay back at the year’s end.

“Therefore, to avoid  forex market shocks, the State Bank should gradually adjust the exchange rate within its committed 2-3 per cent margin until the year’s end, especially the gap between the nominal effective exchange rate and real effective exchange rate is still high,” said Trinh Quang Anh, head of Maritime Bank’s economic research centre.

Anh said the gap between domestic and foreign currency lending rate had sharply narrowed, thus adjusting the exchange rate will help support the State Bank’s interest rate reduction policy.
At the end of last year, the domestic lending rate was around 20-22 per cent, while the foreign currency rate was 7-8 per cent. Investors were in race to borrow foreign currencies, creating much pressure on forex market, but the current domestic lending rate was down to 15-17 per cent.

In the first six months this year, Vietnam had exported $53.1 billion, up 22 per cent and imported $53.84 billion, up 6.9 per cent compared to the same period last year. In total, Vietnam has a trade deficit of $685 million, equal to 10.6 per cent of the last year’s corresponding period.