VietNamNet Bridge – Analysts’ prediction about the dong/dollar exchange rate stabilization has come true. However, businesses do not want to see the exchange rate stay put.

The dong/dollar exchange rate

According to the State Bank of Vietnam, the foreign currency market has been stable in the last month with the exchange rate hovering around 20,830-20,860 dong per dollar.

Most of the transactions on the interbank market in August were the short term ones (less than 9 months), the interbank dong/dollar exchange rate announced daily by the State Bank was stabilized at 20,828 dong per dollar, or 8 dong higher than the latest threshold created half a year ago.

The information only reflected the market performance in the first three weeks of August. Meanwhile, the finance market vibrated in the last week of the month, following the arrest of Nguyen Duc Kien, a well known banker in Vietnam.

However, the escalation of the gold price and the dollar price increases in the black market, which occurred on the three days after the arrest of Kien, have both been controlled thanks to the intervention measures of the State Bank.

The unexpected dollar price increases on the last some days of August has not had any big impacts on businesses.

Nguyen Hung Anh, a senior executive of a company specializing in importing healthcare equipments and medicine, said that the dollar price increase did not influence the company’s business plan.

“The State Bank of Vietnam has promised not to devaluate the dong by more than three percent, and we have confidence in the promise,” he said.

Why do Anh and other businesses believe the State Bank’s promise? Anh said that the State Bank fulfilled its commitments in 2011, when the national economy big challenges, including the high inflation. This means that the State Bank will do it in 2012 as well.

Besides, Anh believes that the demand for dollars in 2012 is not as high as in 2011 because of the imports decreases. Therefore, there is not much pressure on the dong/dollar exchange rate.

Foreign currency borrowers welcomed

Since the dong lending interest rate was very high at 15 percent per annum, a lot of enterprises borrowed dollars in order to be able to enjoy the low interest rates.

However, contrary to all predictions, the borrowing in dollars in a large scale has not led to the dollar supply shortage once the loans become matured and businesses seek to buy dollars in quantities to pay debts.

The key lies in the fact that the virtual demand for dollars did not increase, because the subjects to foreign currency loans were limited. Meanwhile, the demand was not high, because Vietnamese enterprises reduced the imports in the context of low purchasing power.

The petroleum imports decreased by nearly 7 percent, LPG 21.4 percent, fertilizer 2.6 percent, and steel by 4.4 percent, according the General Statistics Office. This shows that businesses still have not got ready to prepare the input materials for their production, even though the year-end production season nears.

Be flexible in volatility

A banking expert said that the dong/dollar exchange rate stabilization in the first half of the year helped business feel secure in making investment and drawing their business plan.

However, he said that if the dong/dollar exchange rate is kept unchanged for a long time in Vietnam, while the dollar value fluctuates in the world market, this would not benefit Vietnamese businesses, especially exporters.

A report by the National Assembly’s Economics Committee released in June 2012 said that the exchange rate should become flexible, and that such a narrow trading band should not be applied for a long time. The “anchored” exchange rate has led to the fact that exporters cannot enjoy benefits from the dollar price gaps.

DDDN