Pressures build though central bank says keep Vietnamese dong stable

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The Vietnamese dong sunk on Monday to its lowest level ever on the unofficial market, traders said, and the central bank looked set to combat the downward pressure by selling dollars to select firms instead of devaluing.

The dong fell to 20,140/20,190 per dollar at 0530 GMT on Monday at a major gold shop in Hanoi, slipping 1.5 percent from last Monday.

Dealers at two gold shops in Hanoi said Monday's level was the lowest in history.

The State Bank of Vietnam has devalued the currency three times since last November with the currency under pressure from inflation fears, a persistent trade deficit and widespread expectations that it will continue on its downward track.

Last Tuesday, SBV Governor Nguyen Van Giau rejected market rumors of another dong devaluation, saying the central bank had no plans to adjust the dollar/dong exchange rate, even though the dong's value has been dropping.

The central bank, however, may sell dollars to several commercial banks to help meet demand for essential goods imports, the online newspaper VnExpress (vnexpress.net) quoted an unidentified central bank official as saying.

Vuong Thai Dung, deputy general director of Petrolimex, Vietnam's top petrol and gas distributor, said the firm had asked the central bank for help in securing dollars.

"We have received information that we can have dollars from the commercial banks that we do business with, but we have not started disbursing for our import contracts yet," Dung said.

He said the dollars will be used for import contracts Petrolimex has signed with foreign partners earlier this year.

Meanwhile, two government advisers said there was no need for a change in the foreign exchange rate at this point.

The central bank still had means to stabilize the market, the Vietnam Economic Times quoted Cao Sy Kiem, a member of the National Monetary and Financial Policy Advisory Council, as saying in an online report (vneconomy.vn) on Friday.

A devaluation would worsen Vietnam's foreign debt burden and lead to higher imported inflation, he said.

The central bank-run Banking Times on Monday quoted Tran Hoang Ngan, another member of the council, as saying a devaluation would not necessarily spur exports.

"Vietnam has to import materials for producing export goods, therefore net exports are not so large. I think we should not change the rate in the short term," he said.

Psychology and soaring gold prices were driving the market, Ngan said.

But Le Dang Doanh, an independent economist and former government adviser, said liquidity was tight because of rising demand for dollars heading into year-end end and hoarding by speculators hoping to smuggle gold into the country.

"Vietnam still has room for further devaluation this year as the local currency has kept losing value since 2007," Doanh said, even though the dong has fallen 5.52 percent so far this year.

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