Dong/dollar exchange rate stabilization doesn’t benefit businesses
VietNamNet Bridge – Analysts’ prediction about the dong/dollar exchange ratestabilization has come true. However, businesses do not want to see the exchangerate stay put.
The dong/dollar exchange rate
According to the State Bank of Vietnam, the foreign currency market has beenstable in the last month with the exchange rate hovering around 20,830-20,860dong per dollar.
Most of the transactions on the interbank market in August were the short termones (less than 9 months), the interbank dong/dollar exchange rate announceddaily by the State Bank was stabilized at 20,828 dong per dollar, or 8 donghigher than the latest threshold created half a year ago.
The information only reflected the market performance in the first three weeksof August. Meanwhile, the finance market vibrated in the last week of the month,following the arrest of Nguyen Duc Kien, a well known banker in Vietnam.
However, the escalation of the gold price and the dollar price increases in theblack market, which occurred on the three days after the arrest of Kien, haveboth been controlled thanks to the intervention measures of the State Bank.
The unexpected dollar price increases on the last some days of August has nothad any big impacts on businesses.
Nguyen Hung Anh, a senior executive of a company specializing in importinghealthcare equipments and medicine, said that the dollar price increase did notinfluence the company’s business plan.
“The State Bank of Vietnam has promised not to devaluate the dong by more thanthree percent, and we have confidence in the promise,” he said.
Why do Anh and other businesses believe the State Bank’s promise? Anh said thatthe State Bank fulfilled its commitments in 2011, when the national economy bigchallenges, including the high inflation. This means that the State Bank will doit in 2012 as well.
Besides, Anh believes that the demand for dollars in 2012 is not as high as in2011 because of the imports decreases. Therefore, there is not much pressure onthe dong/dollar exchange rate.
Foreign currency borrowers welcomed
Since the dong lending interest rate was very high at 15 percent per annum, alot of enterprises borrowed dollars in order to be able to enjoy the lowinterest rates.
However, contrary to all predictions, the borrowing in dollars in a large scalehas not led to the dollar supply shortage once the loans become matured andbusinesses seek to buy dollars in quantities to pay debts.
The key lies in the fact that the virtual demand for dollars did not increase,because the subjects to foreign currency loans were limited. Meanwhile, thedemand was not high, because Vietnamese enterprises reduced the imports in thecontext of low purchasing power.
The petroleum imports decreased by nearly 7 percent, LPG 21.4 percent,fertilizer 2.6 percent, and steel by 4.4 percent, according the GeneralStatistics Office. This shows that businesses still have not got ready toprepare the input materials for their production, even though the year-endproduction season nears.
Be flexible in volatility
A banking expert said that the dong/dollar exchange rate stabilization in thefirst half of the year helped business feel secure in making investment anddrawing their business plan.
However, he said that if the dong/dollar exchange rate is kept unchanged for along time in Vietnam, while the dollar value fluctuates in the world market,this would not benefit Vietnamese businesses, especially exporters.
A report by the National Assembly’s Economics Committee released in June 2012said that the exchange rate should become flexible, and that such a narrowtrading band should not be applied for a long time. The “anchored” exchange ratehas led to the fact that exporters cannot enjoy benefits from the dollar pricegaps.
Most of the transactions on the interbank market in August were the short termones (less than 9 months), the interbank dong/dollar exchange rate announceddaily by the State Bank was stabilized at 20,828 dong per dollar, or 8 donghigher than the latest threshold created half a year ago.
The information only reflected the market performance in the first three weeksof August. Meanwhile, the finance market vibrated in the last week of the month,following the arrest of Nguyen Duc Kien, a well known banker in Vietnam.
However, the escalation of the gold price and the dollar price increases in theblack market, which occurred on the three days after the arrest of Kien, haveboth been controlled thanks to the intervention measures of the State Bank.
The unexpected dollar price increases on the last some days of August has nothad any big impacts on businesses.
Nguyen Hung Anh, a senior executive of a company specializing in importinghealthcare equipments and medicine, said that the dollar price increase did notinfluence the company’s business plan.
“The State Bank of Vietnam has promised not to devaluate the dong by more thanthree percent, and we have confidence in the promise,” he said.
Why do Anh and other businesses believe the State Bank’s promise? Anh said thatthe State Bank fulfilled its commitments in 2011, when the national economy bigchallenges, including the high inflation. This means that the State Bank will doit in 2012 as well.
Besides, Anh believes that the demand for dollars in 2012 is not as high as in2011 because of the imports decreases. Therefore, there is not much pressure onthe dong/dollar exchange rate.
Foreign currency borrowers welcomed
Since the dong lending interest rate was very high at 15 percent per annum, alot of enterprises borrowed dollars in order to be able to enjoy the lowinterest rates.
However, contrary to all predictions, the borrowing in dollars in a large scalehas not led to the dollar supply shortage once the loans become matured andbusinesses seek to buy dollars in quantities to pay debts.
The key lies in the fact that the virtual demand for dollars did not increase,because the subjects to foreign currency loans were limited. Meanwhile, thedemand was not high, because Vietnamese enterprises reduced the imports in thecontext of low purchasing power.
The petroleum imports decreased by nearly 7 percent, LPG 21.4 percent,fertilizer 2.6 percent, and steel by 4.4 percent, according the GeneralStatistics Office. This shows that businesses still have not got ready toprepare the input materials for their production, even though the year-endproduction season nears.
Be flexible in volatility
A banking expert said that the dong/dollar exchange rate stabilization in thefirst half of the year helped business feel secure in making investment anddrawing their business plan.
However, he said that if the dong/dollar exchange rate is kept unchanged for along time in Vietnam, while the dollar value fluctuates in the world market,this would not benefit Vietnamese businesses, especially exporters.
A report by the National Assembly’s Economics Committee released in June 2012said that the exchange rate should become flexible, and that such a narrowtrading band should not be applied for a long time. The “anchored” exchange ratehas led to the fact that exporters cannot enjoy benefits from the dollar pricegaps.