Dual effects on foreign currency market
07:09 | 07/06/2011

VGP – Just within the first two days of June, the State Bank of Việt Nam (SBV) made important decisions in a bid to tighten management over the foreign currency market and improve the VND value.

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Specifically, the SBV promulgated two circulars and a decision requiring State-owned enterprises (SOEs) and to sell foreign currency to credit institutions since July 1.

In another move, the SBV also twice decided to raise commercial banks’ compulsory foreign currency reserve from 4% to 6% and most recently to 7% in order to stabilize the exchange rate.

Following the above decisions, the exchange rate of USD/VND and interest rates are expected to see new signals.

Updated information in the morning of June 3 showed that the average inter-bank exchange rate fell down to VND 20,633 one USD-the lowest rate since February 11, 2011.

Normally, foreign currency demand often rises at year-end, strongly affecting the exchange rate, the commercial banks’ figures show.

However, as the foreign currency reserve increase, business costs also rise, leading to relevant higher lending rates.

On the other hand, the foreign currency demand is forecast to shrink, as the SOEs that the State holds 50% or above of their charter capital, must sell out their foreign currency reserves since July 1.

Moreover, the Government plans to cut 10% of public investment this year, therefore, series of projects will be cancelled or delayed, thus making foreign currency demand for import decrease.

As of 2011, the central bank bought in US $1 billion (equivalent to VND 20 trillion) in an effort to contain inflation but the dosage seemed small as the VND supply was just less than 2% by May compared to the whole year’s preset plan of 16%.  

To stabilize the exchange rate, many economists suggest that the SBV would take stronger measures to further increase foreign currency reserve.

By Hải Minh

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