The dollar price on the black market in Hanoi on April 6 rose by VND420-500/US$1, or 3-4% in the last 10 days. In HCM City, the dollar is selling at VND16,220-16,240/US$1. After five months of falling down, the greenback is becoming more and more expensive.
Exchange rate attempts to break the ceiling
This is the first time the VND/US$ exchange rate hits the ceiling level (the rate applied in transactions by commercial banks and businesses is 1% higher than the exchange rate announced by the State Bank of Vietnam). If compared to March 26, the day just before the ‘dollar fever’ occurred, the current dollar price is VND190-290/US$1 higher.
Vietcombank and Eximbank, two leading banks in foreign currency trading, both keep the VND/US$ exchange rate at VND16,120/US$1 for the last week, the highest possible rate.
The dollar price increased sharply in the last week partially because HSBC purchased a big volume of dollars for its clients
“The fact that the exchange rate hits the ceiling level shows that banks all want to attract more dollars to their banks. If the dollar price was not capped by the +/-1% forex trading band, the dollar price would be much higher than the currently applied levels,” said Tran Phuong Binh, General Director of East Asia Bank (EAB).
Many banks, anticipating the US$ capital shortage, tried to push up mobilizing US$ capital right in March. Sacombank on March 27 began issuing promissory notes in dollar worth $30mil. Eximbank on March 24 raised the US$ deposit interest rate to 6.2% per annum for 12-month term deposits.
On April 4, the Vietnam Banking Association (VNBA) released the list of commercial banks which had slashed the deposit interest rates as per the agreement reached before among VNBA’s members. And the list did not include the names of eight banks. The banks might think that they should not lower the deposit interest rates when they still lack capital, including US$ capital.
Which pockets dollars are lying in?
Finally, the State Bank of Vietnam late last week released the official explanation on the unexpected appreciation of the dollar.
First, commercial banks are rushing to purchase foreign currencies on the market in anticipation of the higher demand for the dollar.
Second, when the dollar price tends to increase, exporters, hoping for better prices in the future, do not sell dollars at this moment.
Third, the decrease in oil prices in recent days has led to the higher demand for imports and higher demand for foreign currencies to make payment for import deals.
In an effort to calm the market down, the State Bank of Vietnam said it has been selling dollars to commercial banks in order to satisfy the demand for making payments.
Analysts all say that the demand for dollars is increasing. By the end of the first quarter of 2008, the trade deficit had reached $7.36bil, or 2.7 times higher than the export turnover. Meanwhile, foreign investors are trying to convert VND into dollars as they have not disbursed their money for investments yet due to the continued falls of the stock market
Will the dollar remain hot?
When asked to predict the VND/US$ exchange rate performance in the time to come, Binh from EAB said: “The VND/US$ exchange rate will depend on the moves of the State Bank”. Binh implied the purchase and sale by the central bank as the final buyer and seller on the market.
Meanwhile, the director of another bank said that the dollar will remain hot for two months at least.
He said that banks will have to move heaven and earth to get enough dollars to feed the demand of the national economy.
“In fact, we feel that we lack dollars because of the scheme on the ceiling exchange rate. The existence of the ceiling exchange rate is one of the reasons that created false demand and limited supply,” he said.
Binh also agreed that it is not highly possible to see the dollar depreciate again.
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