Dong still under depreciation pressure despite dollar deposit fall, experts

Stability of the Vietnamese dong in the first quarter this year denies expectation by money speculators on 1 percent increase of exchange rate between VN dong and US dollar. 

 

A bank in HCMC reported that 60 percent of its due US dollar deposits have been changed into the Vietnamese dong (Photo: SGGP)

Although the dong’s value to the US dollar has remained stable, experts forecast that it will be under large pressure of depreciation this year because of abroad impacts.
                                                                                        
The exchange rate stabilization this year is partly because the State Bank of Vietnam (SBV) has applied monetary tightening and exchange rate management policies, reduced the interest rate on dollar deposits to zero percent a year. These have strongly hit speculators and reduced the dollar influence to the economy.
 
Mr. Nguyen Hoang Minh, deputy director of SBV’s branch in Ho Chi Minh City, said that the number of HCMC citizens and businesses keeping the US dollar has significantly reduced over before.
 
The US dollar mobilization rate at banks in the city has reduced by 6.2 percent since October 2015 till now. Specifically, it dropped 2.7 percent in the last three months last year and 3.5 percent in the first two months this year.
 
The rate moved up in the last two months of 2015 as large exchange rate fluctuations sent many businesses to keep the dollar with hope for increase. In addition, they needed the dollar for payment of increasing yearend transactions.
 
The ratio of US dollar depositors has reduced since the beginning of this year after SBV implemented the new exchange rate management policies.
 
At present the Vietnamese dong to US dollar exchange rate has been VND200 lower than that at the end of last year. Sometimes the rate in the free market was lower than it in the banking system so businesses have no longer kept the US dollar as they used to, Mr. Minh said.
 
A bank leader in HCMC said that 60 percent of their due dollar deposits have been changed into dong since early this year.
 
The leader said that the trend of converting the dollar deposits into dong will continue in the upcoming time because the interest rate difference between the dong and the dollar has accelerated to 6-7 percent a year.
 
Banks in HCMC have reported that dong deposit ratio has hiked about 1.3 percent this year while according to SBV the dollar ratio has reduced nearly 4 percent nationwide since February.
 
The Federal Reserve System (Fed) has decided to reduce dollar interest rate from four to two times this year and the dollar has continued devaluating over other currencies.
 
However financial experts said those would not help the dong escape from the pressure of depreciation in the upcoming time because Fed will soon increase the dollar interest rate and the Yuan has continued devaluating.
 
Ms. Izumi Devalier, economic expert of HSBC who is in charge of Vietnamese market, forecast that the dong might devalue 3 percent this year.
 
That was partly because of the forex reserves of Vietnam, which recovered in 2015 but then reduced in the last two months of the year when export value decreased, she said.
 
At present, the forex reserves continue reducing making it difficult for Vietnam to resist abroad exchange rate ‘shocks’.
 
In addition, the country has seen trade deficit which might recur this year resulting in trade imbalance and putting pressure on the balance of payments.

By Hanh Nhung – Translated by Hai Mien

Other news

Most view

Economy

HCMC focuses on safe pig breeding chain

The HCM City department of agriculture & rural development has just held conference about the sustainable pig breeding and safe pork production market in HCMC.

Self - introduction

VNPT targets to be leading digital service provider in Vietnam

The grand opening ceremony of the VNPT-Information Technology Company (VNPT-IT), a new member of the Vietnam Posts and Telecommunications Group (VNPT), was held yesterday in Hanoi. With thousands of IT engineers and the focus on developing state-of-the-art technological products related to Artificial Intelligence (AI), Bigdata, and Blockchain, the new company is considered the main force to help VNPT fulfill the goal of becoming a leading digital service provider in Vietnam and an important Digital Hub of the neighborhood as well as the world.

Stock market

STK to issue 10.8million shares

The shareholders of Century Synthetic Fiber Corp (code: STK) have approved plan to issue 10.8 million shares.