VietNamNet Bridge – The dollar price has been stabilized, which is believed to be beneficial from the efforts to fight against inflation and the gap between the dong and dollar interest rates.
Three factors that help stabilize the exchange rate
After the State Bank of Vietnam released a new decision stipulating that the daily foreign currency position now is 20 percent instead of 30 percent, the dollar prices increased slightly. However, the increases were too small to kick off a new price hike wave. The dollar price has become stabilized again because of a lot of factors that support the supply.
The report of a state owned bank showed that on March 19-23, the foreign currency market was relatively bustling with the trading volume up by 30 percent over the week before, the highest level so far this year.
On the five days, the dollar price unexpectedly soared to 20,950 dong per dollar, but then dropped to 20,900 dong. The downward trend continued on the next days, and the dollar price fell to 20,800-20,860 dong per dollar (purchase and sale) on March 29.
An executive of the above said bank said that there are three main factors that help stabilize the exchange rate for a long time.
Firstly, people do not expect sharp increases in the dollar prices. Right at the beginning of the year, the State Bank of Vietnam’s Governor stated that the exchange rate adjustment in 2012 will not be higher than 3 percent. The statement has been understood that the “message” from the watchdog agency.
Secondly, the dollar supply continues to be profuse. Though the demand for dollars to pay debts and import goods increased slightly, the demand remained week which saw the 15-17 percent decreases in comparison with the same period of the last year. The demands for dollars mainly come from petroleum and car importers.
The demand also comes from the banks which need to buy foreign currencies in order to improve their foreign currency positions. As the newly set up foreign currency position now must not be higher than +/-20 percent, banks cannot sell dollars in big quantities as they did in the past, while the foreign currency flow in the future is weak. Therefore, the banks need to purchase more dollars to satisfy the new requirement.
Besides, the fact that the State Bank allowed six enterprises to import 600 kilos of gold, worth 30 million dollars, has also been seen as the factor that leads to the higher demand.
However, the slightly increased demand for the dollar proves to make nothing if compared with the profuse supply from export companies, estimated at 150 million dollars per day.
Besides, the gap between the dong and the dollar interest rates of 8-10 percent has prompted dollar holders to push up sale to get dong to do business and make payment. The money in dong has also been deposited at banks for profits.
The State Bank of Vietnam has taken actions to gradually reduce the gap between the domestic and the international prices, which has made the gold market less hot. Once the domestic gold market gets cooler, the demand for gold imports would decrease, which means that enterprises would not need much money to import gold.
Analysts have commented that once the exchange rate stabilizes, the State Bank would be the first beneficiary. Sources show that the State Bank has bought a big volume of foreign currencies so far this year. Sometimes, the watchdog agency bought 60-70 million dollars a day. They said that the exchange rate stabilization is the result of the policies on tightening monetary policies and cubing inflation, and the total demand decrease.