May, 17 2012 10:46:00

Exchange rates stay stable

HA NOI — Exchange rates are showing stable development, says financial and banking expert Nguyen Tri Hieu.

The average inter-bank rate of exchange yesterday, as listed by the State Bank of Viet Nam, continued to stay at VND20,828 per US dollar, a level it had maintained for almost all of a six-consecutive-month period since November 24 last year.

Exchange rates on the regular market were showing correlative moves, with commercial banks — including Vietcombank, BIDV, Eximbank and Vietinbank — listing buying rates at around 20,820 dong/dollar and selling rates around 20,870 dong/dollar.

Hieu told Thoi bao Kinh te Viet Nam (Viet Nam Economic Times) that the stable trend was due to significantly increasing State Bank foreign exchange reserves, few fluctuations on the gold market and great differences between the interest rates for dong and dollar, which was making the foreign currency less attractive.

The trend was also backed by central bank measures to stabilise the foreign currency market, positive signs from import-export and declining demand for foreign currencies due to domestic production slowdown, he added.

The National Financial Supervisory Committee (NFSC) said there was a high possibility that stability would continue over the coming months.

Exchange rates would not see strong fluctuations in the short term with abundant supply and small demand for foreign currency, it said, noting that the nation's general payment balance was seeing a surplus of about US$2 billion while international investors were showing greater confidence in the domestic economy.

Hieu warned, however, that there were still many unpredictable factors that could cause fluctuations in the foreign currency market during the remainder of the year, as global prices remain unstable and imports are likely to see sudden changes by the end of the year.

Tai Hui, an economist at Standard Chartered Bank, recently said although the trade deficit had narrowed to $257 million in the first quarter of this year from $1.6 billion in last year's fourth quarter, it was still too early to determine whether the trade balance would continue to improve or not.

He reportedly forecast that the dong would depreciate slightly by 4.3 per cent in 2012.

The NFSC said flexible policies were needed in order to avoid pressure on exchange rates between now and the end of the year and that rates should be kept at "reasonably stable" levels.

The dong should not be floated so as not to negatively affect the Government's efforts in restoring the confidence of business, investors and people in the domestic currency's value and the economy.

On the other hand, the NFSC said with an inflation difference level between Viet Nam and its major trade partners expected to reach 5-7 per cent this year, and with the dong being valued about 5.46 per cent higher than its real value, a fixed exchange rate would affect the competitiveness of domestic goods in the future.

The committee said the current exchange rate could be adjusted in a 3-5 per cent amplitude to facilitate exports, which were expected to see many difficulties.

A Government commitment to maintaining stable exchange rates with low-level adjustments would stimulate short-term capital flows into the country, including finances from foreign direct investment and foreign short-term lending, the NFSC said.

Such capital sources would help increase foreign currency supply and national reserves, which could promptly be withdrawn from Viet Nam in case of fluctuation, posing a risk for the country in the middle term if capital inflows were large-scale compared with national reserves, it noted. — VNS

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