Updated  
January, 27 2014 08:53:00

Foreign exchange rates find stability

by Thien Ly

Despite the slight volatility in the foreign exchange market in recent days, analysts believe that exchange rates will remain stable in the new year.

On January 21 many banks lowered the selling price of the US dollar to VND21,115. In the market, the highest rate now stands at VND21,125 to the dollar and the lowest, at VND21,110.

BIDV, for instance, has cut its buying and selling prices by VND5 to VND21,075 and 21,115.

Many joint stock banks too cut the rate by VND5.

Analyst said that in the last two years the forex rate has been stabilised rather effectively.

In 2013, for instance, the Government allows the central bank to adjust the exchange rate by up to 3 per cent on the interbank, but the dollar hardly ever appreciated by more than 1 per cent.

Clearly, the central bank's commitment to keep the exchange rate stable is holding.

The Government and the central bank have also shown their determination to prevent dollarisation and the use of gold as medium of payment.

The resources the central bank has for intervening in the market have also increased significantly. They include a considerable increase in foreign exchange reserves, low interest rates on US dollar deposits, and a circular to restrict foreign currency lending.

These are expected to encourage people to move away from depositing and borrowing foreign currencies to buying and selling them.

Another important factor that will help stabilise the exchange rate in future is the possible recovery of both the domestic and global economies this year.

Other foreign exchange sources such as foreign direct investment and overseas remittances are predicted to be rather plentiful this year. This will also help keep the exchange rate stable.

Increased support

This year businesses are likely to get increased support from the Government, with several policies that are in place expected to prove their effectiveness.

The last two years, considered the most difficult, passed with thousands of weak businesses closing down.

Last year alone the number of firms that had to shut down or suspend operations due to the economic crisis was up at 60,737, an 11.9 per cent increase over 2012.

Those that have survived appear worn out because of having to fight for their survival.

In such a situation, the Government has been consistent about adopting support policies to succour them, enabling them to recover and develop.

According to a Ministry of Planning and Investment source, businesses are expected to recover maybe not quickly but surely and sustainably in 2014 thanks to the recovery of both the global and domestic economies.

Several policies issued to help them overcome their difficulties during the crisis have started to prove their effectiveness.

They include policies meant to help firms resolve problems like large inventories and bad debts.

Actively reforming State –owned enterprises has helped remove some restrictions, creating opportunities for them to improve their competitive edge.

The ministry source also said that the Government would continue to adopt drastic measures to push up economic growth, with focus on developing the business sector instead of using public investment to power economic growth as it used to in the past.

According to the ministry, companies' inventories continue to be at a rather high level, particularly in the property and construction sectors. So their main tasks this year would be to continue resolving the inventory problem while ensuring liquidity in the economy to enable further growth.

But it is necessary for the Government to have more measures to revive the market and make production activities healthy to ensure sustainable growth of companies.

Bond optimism

Bond yields have fallen to very low levels, but analysts believe that bonds will continue to attract interest from banks.

Since late last year the bond market has proved to be rather busy with large issuances being successfully made.

Even last week the Treasury raised VND5.55 trillion (US$263 million) through government bonds with terms of three to five years and coupons ranging from 6.85 to 8.25 per cent.

The Viet Nam Development Bank issued VND3 trillion ($142.2 million) worth of government bonds with interest rates of 7.95 to 9.20 per cent.

Already this year government bonds and bonds guaranteed by the Government worth a total of VND9.15 trillion ($433.65 million) have been issued, 40 per cent higher than the figure in the same period last year.

Analysts at Vietcombank Securities Company said the bond market would continue to be busy this year.

There are many reasons why investors, especially banks, find bonds attractive:

Positive changes if any in the economy have yet to become clear; opportunities for developing business activities in various industries remain modest.

Besides, banks have to be more careful in their lending since a circular on the classification of their assets will take effect in June.

Even in December, when credit demand shot up, banks were very cautious in lending.

The value of bonds that mature in 2014 will be very high; inflation is expected to be well under control, meaning real interest rates will be high; and bank deposit interest rates will be kept low.

These factors too have contributed to making bonds more attractive than most other asset classes.

Auto market to remain in overdrive

After robust sales last year the auto market is expected to maintain strong growth in 2014, especially with favourable policies set to take effect early this year.

According to the Viet Nam Automobile Manufacturers Association, auto sales rose 19 per cent in 2013 to 110,519 units, higher than the earlier forecast of 108,000 units.

The association reported that sales gradually improved in the closing months of the year, rising to the year's highest of 13,205 units in December, up 30 per cent month-on-month and.

Sales of passenger cars increased by 25 per cent to 44,389 units and that of trucks by 16 per cent to 66,130 units.

Nearly 96,700 were locally assembled vehicles, a 20 per cent rise from 2012.

Auto traders ascribed the better sales to the fresh policy measures, especially the cut in registration fee.

HCMC, Da Nang, and some other major cities have slashed the auto registration fee to 10 per cent from 15 per cent for vehicles with less than 10 seats. Ha Noi cut the fee to 12 per cent.

Experts forecast sustained growth this year also because the economy has become more stable and banks have eased lending requirements.

Besides, demand remains strong.

VAMA has estimated sales of 120,000 units this year. — VNS


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