Market set for flood of greenback

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Last week, with Circular 13/2011/TT-NHNN, the State Bank ordered state-owned enterprises to sell their dollars to the banking system. The order follows up from a related move with March’s Directive 01/2011/CT-NHNN. This time, however, the State Bank has told state-owned enterprises to sell both their term and non-term dollar deposits to banking system.

In April, the State Bank governor Nguyen Van Giau revealed that by the end of March, the total dollar-denominated deposits of state-owned corporations in the banking system had hit $3.61 billion including $376 million in term deposits.

Also in April, Dinh La Thang, the head of PetroVietnam’s board of directors, revealed the firm has sold all $2.7 billion from its crude oil exports to the banking system over the first quarter of 2011. The move was made following the government’s order in March.

Nguyen Thi Kim Thanh, head of the Banking Strategy Institute said the amount which state-owned enterprises could sell to banking system was much larger than in March. In March, the State Bank only ordered the selling out immediately sell-off of term dollar deposits.

“With possibly billions of dollars [in] supply, the forex market will further stabilise,” said Thanh.

In Circular 13, the State Bank confirmed state-owned enterprises would be allowed to buy back dollar as needed in the future. “From July 1 to July 7, state-owned enterprises would have to submit their reports on the amount of dollars needed, and then the rest will be sold to banks,” said the State Bank in the circular.

Le Xuan Nghia, deputy chairman of Vietnam’s National Financial Surveillance Commission said that this was an opportunity for the State Bank to further boost national forex reserves especially with the country’s trade deficit continuing to widen. Vietnam’s exports were up 18.9 per cent year-on-year in May, but imports surged by 28.1 per cent resulting in a trade deficit of $1.7 billion. The trade deficit accrued in the first five months of the year hit $6.6 billion compared with the government’s forecast of $14 billion for the whole year.

Sherman Chan, HSBC’s ASEAN economist said the widening trade gap also warranted immediate attention, as it could weigh on market confidence and exert pressure once more on the recently stabilised currency.

“Although patience is needed for recent policy measures to work their way through the economy, the extent to which economic challenges have intensified especially with inflation and trade imbalance suggests policymakers still need to step up efforts in fine-tuning the economy. Get ready for more fiscal and monetary tightening in coming months,” said Chan.

So far, the State Bank is yet to hike the reserve requirement for Vietnam dong reserve requirement in 2011.