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Vietnam needs “wartime solutions” for foreign currency market

Date: 11/26/2009 4:28:17 PM

Analysts, while applauding the timely decision by the State Bank of Vietnam to raise the basic interest rate and adjust interbank exchange rates, say Vietnam needs to take special, and even harsh measures, in such a critical situation.

Vietnam needs “wartime solutions” for foreign currency market.

The foreign currency market has been too hot for the last two months. Export companies, which earn in foreign currencies, refuse to sell dollars to banks, believing dollar prices would riser further. Meanwhile, import companies either cannot purchase dollar from banks, or have to collect dollars on the black market.

The dollar fever reached its peak on November 24, when the price nearly hit the 20,000 dong per dollar threshold, while the dong/dollar rate on the black market was 10 percent higher than the rate quoted by commercial banks.

The State Bank has done what it can do: raising the basic interest rate, adjusting the interbank exchange rate, and lowering the forex trading band. The interbank exchange rate was raised from 17,034 dong per dollar on November 25 to 17,961 dong per dollar on November 26, up by 5.44 percent. The trading band has been lowered to three percent from five percent. Meanwhile, the basic interest rate has been raised from seven to eight percent.

Commenting, Tran Hoang Ngan, deputy president of the HCM City Economics University, said that this “double policy” (adjusting the exchange rate and basic interest rate at the same time) is a reasonable move which will help settle the problems of the foreign currency market.

The Governor of the State Bank Nguyen Van Giau said that the next move could be the central bank asking the Prime Minister to urge state owned groups to sell foreign currencies to banks.

Meanwhile, a banker, who asked to be anonymous, thinks that the State Bank should apply more drastic measures. He suggests forcing all businesses which have foreign currencies to sell them to banks. Besides, he said, the State Bank should impose heavy punishment on commercial banks which deliberately sell dollars at prices higher than ceiling levels.

“The measures applied for this time should be the special wartime measures,” he commented, implying that it is necessary not only to apply economic measures, but administrative orders as well.

Ngan also thinks the State Bank needs to apply a lot of comprehensive measures at the same time. He has suggested issuing bonds in gold to the enterprises which have gold import quotas.

Analysts said that in long term, the Government needs to settle the trade deficit and strive to balance trade in five or ten years

The black foreign currency market made reacted cautiously yesterday morning after the central bank announced decisions on raising exchange rates and basic interest rates. However, the market was bustling again in the afternoon

In the morning, the sale dong/dollar rate was kept at 19,850 dong per dollar, while the purchase price lowered a little. The gap between the sale and purchase prices was raised to 200 dong.

In early afternoon, the dollar price decreased significantly. Dollars were traded at 19,400-19,600 dong per dollar, down by 250 dong per dollar over the morning.

When asked about the possible dollar price performance in the next few days, traders said they will consider exchange rate offered by commercial banks before setting purchase and sale prices

A gold shop owner said that she still cannot see any clear reactions for now. A lot of people are selling dollars because they think the dollar price will not increase any further now the central bank has made an intervention. Meanwhile, other people purchase dollars because they believe that the price will keep rising

In late yesterday afternoon, the market became quieter. There were only buyers, who really needed dollars to go abroad. A client said she has just purchased a small volume of dollars from the ‘foreign currency street’ Ha Trung, because the seller refused to sell large volumes.

(Source:VietNamNet + /VNE)

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