Dong Unlikely to Drop More than 5 percent

[LeoGoddess]

VietFinanceNews.com – The Vietnamese government has promised to keep the dong’s value stable and it’s unlikely the currency will be devalued more than 5 percent over the next eight months, an official said.

The State Bank of Vietnam on February 11 lowered the dong by 3.4 percent against the dollar to better reflect supply and demand on the market, Le Duc Thuy, Chairman of the National Financial Supervision Committee, told Thanh Nien in an exclusive interview.

He said the move had eased concerns that the local currency would be devalued even further.

The dong has traded at around 19,000 per dollar over the past few days, compared with around 19,085 a month ago. Last week the dollar hit its lowest point in more than a year on the black market.

http://www.vietfinancenews.com/2010/…han-5-pct.html



“Lending rates for dong loans are around 15 percent now while the rates on dollar loans are only 7-8 percent,” Thuy said.

The gap between the rates are encouraging local companies to take dollar-denominated loans and then sell the dollars to buy materials and pay salaries for their workers, he said.

“When dollar supply rises and demand falls, the exchange rate certainly has to fall,” he said.

“But the risk is that when loan repayment begins, businesses will have to buy dollars, suddenly boosting demand for the greenback. Higher demand will drive the exchange rate up again and the authorities will have to think about how to prevent excessive fluctuations.”

Vietnam’s trade deficit in the first three months reached $3.5 billion. Last year’s deficit was recorded at $12.2 billion.

Thuy said the trade deficit would decline this year as exports are rising, up 1.6 percent in the first quarter. Foreign direct investment disbursements and overseas remittances are also set to grow, he said.

Vietnam’s current account deficit will be narrowed and downward pressure on the dong will eased, bringing dollar speculation down, he said.

“However, we should not be too cheerful about recent declines in the exchange rate,” he said.

[syanardinar]

DEVALUE? Aren't we looking for a REVALUE? O.K.> correct me if I am wrong, but this article is saying NO MORE THAN A 5% DEVALUE OVER THE NEXT 8 MONTHS? Sooooooooo, not a good time to expect anything with this currency, right?

[swampyjackpot]

I agree... whew!!! I was looking forwqard to an RV within the next couple of days! Could this be a smokescreen? I am hoping so....

[Mojo]

I agree... whew!!! I was looking forwqard to an RV within the next couple of days! Could this be a smokescreen? I am hoping so....

I'm thinking major smokescreen

[VIZIOIRAQ]

VietFinanceNews.com - More and more businesses prefer to borrow dollars rather than dong, considering this a wise move in the context of a stable to improving dong/dollar exchange rate, reports Đau Tu Chung Khoan.




The dong has gained a bit of ground against the dollar in the last days of April. For the first time in history, black market dollars are offered at less than the price quoted by commercial banks. This has helped commercial banks attract more foreign currency deposits. It has also dispelled exporters’ expectations that the dollar would keep rising and prompted exporters not to hoard so many of them. As exporters have started selling dollars for the dong they need to meet payrolls and other operating costs, the supply of dollars has been improved.


In such conditions, some firms judge it wiser to borrow dollars, not dong. An employee of the Thien Nghi Production and Trade Company in HCM City said that the company has borrowed in foreign currencies over the last three months, especially after interest rate ceilings were removed and the cost of borrowing dong soared.


The source explained why his company borrows in dollars. Thien Nghi is an export company. It has income in foreign currencies it will use to pay its debts to banks. Thus, by borrowing in dollars when it needs cash to finance raw materials or build up inventory, Thien Nghi reduces its foreign exchange risk – losses that could come if the dong/dollar exchange rate fluctuates.


That’s one reason. However, the most important motivator for Thien Nghi is that the interest rate quoted on dollar loans is as low as 1/3 of the interest rate quoted on dong loans, reflecting the market’s expectation that the dong will continue to lose value. That may happen, but in the short term, borrowing in dollars will help ease the financial burden on the company.


At Asia Commercial Bank ACB, for example, the dollar lending interest rate is hovering between four or five percent per annum, according to Deputy General Director Do Minh Toan. Meanwhile, the dong lending interest rate is at 14 to 16 percent per annum. Since the State Bank removed the cap on loan interest rates, formerly 12 percent, the dong interest rate has surged.


Toan agreed that it’s wise for export companies which have income in foreign currencies to borrow in dollars at this moment. Toan said that the dong is tending to gain on the dollar and fluctuations have been reduced – good signs.