Businesses concerned about dollar appreciation

10:51 AM @ Tuesday - 09 April, 2024

Enterprises which have to import raw materials for production or have dollar-denominated loans are very worried as their input costs will increase significantly.

Many enterprises are concerned about adverse impacts of the sharp appreciation of the US dollar on their business and production if the greenback continues to see fluctuation in the future, especially at the middle and end of the year.

The exchange rate between the Vietnamese đồng and the US dollar at banks has recently increased sharply. On Wednesday, the dollar price surpassed the VNĐ25,000 threshold. Vietcombank listed the dollar at VNĐ24,750 for buying and VNĐ25,120 for selling. The rates at VietinBank and BIDV were VNĐ24,720 and VNĐ25,140, and VNĐ24,815 and VNĐ25,125, respectively.

According to Đào Phan Long, a representative of the Vietnam Association of Mechanical Industries (VAMI), enterprises which have to import raw materials for production or have dollar-denominated loans are very worried as their input costs will increase significantly.

Nguyễn Văn Đoàn, deputy director of SKD Vietnam Precision Mechanical Company, said though the exchange rate increase was predicted, it certainly had an impact on enterprises. Despite being a small-sized company with a modest import value, his company had to spend an additional hundreds of millions of đồng for importing raw materials to date this year due to the rate hike. The rise was really a big concern for large-sized companies that have to spend thousands of billions đồng on importing raw materials.

If the exchange rate fluctuations are not controlled and continue to increase sharply in the middle and end of the year, enterprises will face even more difficulties as their demand for imported raw materials and accessories to serve for production always increase then, according to Đoàn. The surge will reduce enterprises’ profits.

According to Thân Đức Việt, general director of the Garment No.10 Corporation, continuous and sharp exchange rate increase has caused his corporation, whose textile and garment products are exported to more than 10 markets around the world, to face difficulties in production and business.

Việt explained that although an increase in the USD/VNĐ exchange rate could help garment producers increase export value, they also had to spend much more money to import equipment, machinery and raw materials.

Besides, in the context that consumer demand had not really recovered strongly, the increase in exchange rates also caused goods sold in the European and American markets to have higher prices, which led to lower consumption, Việt said.

Finance expert Dr. Cấn Văn Lực attributed the exchange rate increase to the reason that the beginning of the year was the time when some FDI enterprises repatriated profits to their home countries. This was a seasonal factor and had the effect of increasing the demand for dollar trading.

Besides, the exchange rate increase was also due to a rise in speculation when the exchange rate fluctuates, Lực said.

Experts admit the exchange rate is being flexibly managed and kept stable by the State Bank of Vietnam. The devaluation rate of the đồng against the dollar is still lower than that of other countries. The VNĐ/USD exchange rate has so far this year increased by only 2.6 per cent.

However, the experts note, if the dollar continues to strengthen compared to the đồng, it may create the risk of import inflation. They explained most of Việt Nam's exports currently have high import value content. At the same time, many products which are consumed in the domestic market also have to import raw materials for production from abroad. This will reduce profits of enterprises in the long run.

However, according to Lực, the recent increase in exchange rates is not too worrying, because the appreciation of the dollar will slow, or even decrease, when the US Federal Reserve (Fed) cuts interest rates and the US economy begins to be affected by the impact of high interest rates.

The SBV has said it will continue to closely monitor the market situation to manage exchange rates flexibly and appropriately. It will be also ready to intervene in the market when necessary to stabilise the foreign exchange market, contributing to inflation control and macroeconomic stability. — VNS