VINACHEM

The Vietnam dong currency has strengthened against the U.S. dollar on the domestic market this week despite a higher daily average inter-bank exchange rate announced by the State Bank of Vietnam (SBV).

Commercial banks on January 12 afternoon quoted the selling price of the dollar at VND22,440-22,450, falling by VND40-50 against the previous day and VND60-95 over last Friday, while adjusting down the buying price to VND22,300-22,380. Dollar prices were also low in the morning, at VND22,310 for buying and VND22,430 for selling.

On the informal market, the greenback kept sliding, with buying and selling prices hovering around VND22,530 and VND22,570.

The central bank on January 12 set the average inter-bank exchange rate at VND21,913 per dollar, a slight rise compared to the previous day. With the trading band of 3% on either side, banks could quote the ceiling price at VND22,570.

The central bank launched the new foreign exchange management mechanism on January 4 permitting banks to raise the ceiling exchange rate steadily. However, the dollar price has kept falling.

A banker told the Daily that banks have seen foreign currency supplies rising thanks to direct and indirect investment capital inflows. The supply from merger and acquisition (M&A) deals was also huge. The dong-dollar exchange rate is expected to stay at VND22,400-22,500 next week.

A deputy general director of a HCMC-based bank said foreign currency demand has been low. Meanwhile, supply has improved due to high investment disbursements and incoming remittances.

According to a recent survey by the SBV’s Monetary Policy Department and Monetary Forecasting and Statistics Department, banks have reported high dong and foreign currency liquidity.

Some 55% of banks taking part in the survey said liquidity could remain high in the first quarter of 2016 despite rising cash demand ahead of the Lunar New Year holiday, or Tet.

Besides, 41% of respondents expected liquidity to improve further.

HSBC Bank said in a report last week that in the final quarter of last year, the SBV kept its promise to refrain from devaluing the dong further.

However, as the nation’s foreign exchange reserves are falling with import cover down to 2.1 months as of the third quarter of 2015, the central bank might let the domestic currency fall further in the months ahead.

Since January 4, the central bank has introduced the new fixing mechanism that would allow for a more market-based setting of the reference rate for the dong and the dollar, HSBC said.