VietNamNet Bridge - The dollar price continued to fluctuate after the State Bank devalued the dong by one percent earlier this month. Meanwhile, the State Bank said there would be no further dong/dollar exchange rate adjustment this year.

To many people’s surprise, the dollar price did not cool down after the central bank announced the dong devaluation by one percent on May 7. The dollar prices quoted by commercial banks were just VND45-50 per dollar below the ceiling level. 

Some economists, while commenting that the “dose of medicine” the State Bank prescribed for the foreign exchange market was not strong enough, continued to urge the bank to devalue the dong further.

They said the State Bank should not try to devalue the local currency by no more than 2 percent in 2015, emphasizing that the 2 percent limit should be broken, if necessary.

However, the central bank does not intend to adjust the dong/dollar exchange rate again this year as the 2 percent “quota” has been used up.

Nguyen Thi Hong, deputy governor of the State Bank, late last week said that the dong devaluation of more than 2 percent would not occur.

“The 2 percent devaluation limit was set after we thoroughly considered the forecast for macroeconomic conditions, the domestic and international monetary markets and the predicted surplus in the international payment balance,” Hong said. 

Thus, the State Bank has every reason to maintain a maximum 2 percent dong devaluation.

Hong, speaking to local newspapers some days ago, said the dong/dollar exchange rate needs to be stabilized until the year end for six reasons.

First, the sharp devaluation will benefit exporters, but not importers and the businesses relying on foreign material imports. Meanwhile, textile and garment companies have to import 82.5 percent of materials they need. The figures are 70 percent for wooden furniture manufacturers and 50-60 percent for footwear makers.

Second, Vietnam’s total import turnover is equal to 80 percent of GDP, which shows Vietnam’s production heavily depends on import materials. This means that the weak dong will do more harm than good.

Third, the dong devaluation will increase Vietnam’s foreign debts, while the government has to make every effort to curb the public debt at below 65 percent of GDP.

Fourth, the devaluation may lead to a higher inflation rate, especially when the crude oil price has bounced back in the world market, having exceeded the $60 per barrel threshold.

Fifth, the dong is not overvalued as some analysts said, after the State Bank devalued the dong sharply by 9.3 percent in 2011, and 1-2 percent per annum since.

Sixth, credit institutions still can buy more than sell foreign currencies from economic institutions and individuals, which shows an abundant supply of dollars.

Lan Anh