Forex rate pressure remains high: NA committee
By Tu Hoang - The Saigon Times Daily
HANOI – The pressure on the foreign exchange rate remained strong and has tended to increase further lately, according to a research report of the National Assembly (NA) Economic Committee.
The report conducted by a team headed by Chairman Nguyen Van Giau of the economic committee gave comments on the trend of Vietnam dong depreciating against the U.S. dollar in the upcoming time, including early 2012.
The pressure was attributed to different factors, including inflation, trade deficit, foreign currency credit growth and money speculation.
The research remarked that in the final months of 2011, the forex market witnessed a rapid rise in demand for foreign currencies, dominantly the U.S. dollar. The foreign money was in increasing need to repay matured loans, or to import goods, especially gold, for the year-end season given the price gap between local and global gold.
Also, the rising demand for foreign currency was ascribed to the surge in foreign currency deposit rates to above 5% per year, as well as the speculation activities.
In addition, the foreign currency supply has declined as enterprises were afraid to sell their foreign currencies to the banks for fear that the central bank would continue to devaluate dong.
The NA economic committee suggested that policymakers further pledge to follow the market trends in forex management to regain the market confidence.
According to the calculation in the research, Vietnam dong was overvalued by some 20% in mid-2010, but had also experienced a volatile period with a devaluation of 20% before the global economic crisis occurred in late 2008.
Both high valuation and strong volatility could have left a negative impact on the local economy, as the former may adversely affect the competitiveness of Vietnam on the world market, while upheaval on the forex market could deal a blow to the macro economy and erode the public’s confidence in the local currency.
The research also indicated three issues about the central bank’s policies that are worth considering.
First of all, the economic committee questioned if the aforesaid forex discrepancy resulted from an intended management policy to achieve certain goals.
Also, the report authors wondered if policymakers were aware of the discrepancy and what measures they had taken to lessen the forex and volatility as well as their consequences. Lastly, the research raised a question about the impact of such discrepancy on overall macro-economic situation.
The report, however, recommended the need to continue discussing these issues. The research conducted by the NA Economic Committee with the assistance from the United Nations Development Program (UNDP) will be sent to NA deputies at the next meeting.