Thread: Latest news on the Dong!

Vietnam should stop providing loans in foreign currencies: expert
http://english.vietnamnet.vn/en/busi...s--expert.html
VietNamNet Bridge – In 2010, the gap between the dong/dollar official exchange rate and the exchange rate on the black market once reached 2000 dong per dollar (10 percent), something that had never occurred in the history of Vietnam dong. The year also witnessed continued sharp increases of dollar values, which heavily influenced society and businesses’ operations. However, Dr Le Xuan Nghia, Deputy Chair of the National Finance Supervision Council believes that if drastic measures are taken, the foreign currency market will be stabilized by the first quarter of 2011.


In the interview given to Dau tu newspaper, Nghia suggested some comprehensive measures in order to narrow the gap between the official exchange rate and the exchange rate on the black market to 200 dong per dollar. He also said that it is necessary stop providing loans in foreign currencies.

The government has officially announced that it will not adjust the dong/dollar exchange rate until Tet (February 2011). Does it mean that the government may think of adjusting the exchange rate after Tet?

With the current moderate level foreign currency reserves, I believe that the first thing we need to do is to intervene into the market in order to stamp out the expectations on the dollar price increases and narrow the gap between the official exchange rate and the exchange rate on the black market. After that, it is necessary to apply the measures to intervene the market and adjust the interest rates, adjust the compulsory reserve ratio, and adjust the Vietnam dong and foreign currency interest rates.

If we can do that, the foreign currency market may be stable in the first quarter of 2011, because the gap between the prime interest rate in Vietnam and in the US is not too big, about 5-6 percent. According to my calculations the inflation rate of Vietnam is 7.32 percent, while the figure of the US is 1.5 percent.

What are the biggest pressures on the stabilization of the foreign currency market?

The exchange rate remains the thorniest problem to date and it is also the biggest risk for the macro-economy. The first pressure on the exchange rate stabilization is the payment balance deficit. The payment balance deficit in 2010 reduced from $2.5 billion from $8.8 billion in 2009. As such, we have a firm reason to believe that we can stabilize the exchange rate.

The biggest pressure on the exchange rate now is inflation and therefore we need to control it well. Though basic inflation in Vietnam is not significant (if not counting on food prices and petroleum prices, the basic inflation rate in Vietnam in 2010 would be 7.3 percent only). However, the biggest problem for now is the feelings of people. People are worried about the depreciation of the Vietnam dong. Besides, illegal gold imports should also be cited as a reason that leads to the problems in the foreign currency market.

What measures for the foreign currency market can you suggest?

There are two problems 1/ what to do to stabilize the market and 2/ what to do to fight against dollarization in the national economy?

We believe that in the time to come, we need to both adjustments and intervention in order to narrow the gap between the official exchange rate and the black market’s exchange rate to 200 dong per dollar. After we bring the exchange rate to a stable level, we need to consider doing the second option– restricting and then stopping lending in foreign currencies.

In order to do that, we can use the compulsory reserve ratio. The required compulsory reserve ratio for foreign currency loans should be higher than that for Vietnam dong. Besides, it is necessary to create reasonable gaps between the Vietnam dong and foreign currency interest rates. If so, commercial banks will have to lower the interest rates on foreign currency deposits and raise the lending interest rates. This will lead a situation in which businesses will no longer be interested in loans in foreign currencies. The second measure is to do both the adjustment and intervention.

FEB 2011...Look for USD to appreciate vs currencies in the US Dollar index, while depreciate vs other pegged currencies..Just a wild guess.

Vietnam to Ease Exchange-Rate Rules
http://online.wsj.com/article/SB1000...123431084.html

HANOI—Vietnam will follow a more flexible exchange-rate regime next year while using monetary policy to curb inflation, the central bank said Wednesday, signaling a possible interest-rate increase and another devaluation of the dong.

State Bank of Vietnam Gov. Nguyen Van Giau said the exchange rate will be based on market conditions and interest rates, and should be used to help boost exports and reduce imports, which have put pressure on the country's growing trade deficit.

Vietnam's economy remains burdened by inflation—which hit 11.75% in December, its fastest pace since February 2009—and a trade deficit that reached $13.235 billion for 2010. These have undermined the dong, forcing authorities to devalue the currency three times since late last year.

Despite such worries, the economy has continued to expand. Gross domestic product grew 6.78% this year—faster than the 5.32% growth in 2009—driven by increased industrial production, the government's General Statistics Office said.

The economy grew 7.34% in the fourth quarter from a year earlier. The government initially targeted GDP growth of 6.5% in 2010, and later revised that to 6.7%.

But while the government has been focused on delivering robust economic growth, a lack of clear policies and uncertainty about Vietnam's economic stability have raised alarm bells among ratings agencies.

Standard & Poor's Ratings Services last week cut Vietnam's local and foreign currency ratings because of concerns about the country's banking system.

That came a few days after Moody's Investors Service downgraded Vietnamese government debt, in part because of concerns about the debt woes of state-run Vietnam Shipbuilding Industry Group, known as Vinashin. In July, Fitch downgraded Vietnam's long-term foreign and local currency ratings.

The State Bank of Vietnam lifted its benchmark rate on dong-denominated loans by one percentage point last month, and the government has unveiled a series of new policies to ease inflationary pressures, albeit to little effect.

The central bank has cut the dong's value by 10% against the U.S. dollar since November 2009. On Wednesday the dollar rate was set at 18,932 dong, though it was still commanding a premium of around 11% at gold shops, an indication that the dong remains overvalued.

Mr. Giau said authorities will coordinate monetary policy with fiscal and other macroeconomic measures in an effort to stem inflation and stabilize the economy.

His comments Wednesday, published on the central bank's website, came just two days after he said authorities are aiming to keep inflation below 3.5% in the first half of 2011 and below 7% for the full year, while also taking steps to reduce downward pressure on the dong.

Vietnam also will diversify the foreign currencies it uses in international trade, Mr. Giau said. Interest rates and exchange rates will be set at "appropriate levels" to ensure the safety of the banking system and effective management of the economy by the central bank.

"I think further devaluation cannot be ruled out yet, given the persistent downward pressures on the dong," said HSBC economist Sherman Chan. "However, I still believe the key is to tackle the current economic concerns, so as to restore confidence, which should subsequently help to stabilize the currency. Showing clear policy objectives would be a good start," she said, adding that these may come after the National Congress meeting in January.

Duong Thu Huong, chairman of the Vietnam Banking Association, said the flexible foreign-exchange-rate policy won't necessarily mean a further currency devaluation.

"The central bank's policy is to always boost exports and control imports," Ms. Huong said.

Meanwhile, Mr. Giau said money supply for 2011 is expected to grow 21% to 24%, while banks' outstanding loans are expected to grow 23%. Money supply this year rose 23%, while total outstanding loans rose 27.65%.

— Leigh Murray in Bangkok contributed to this article.

Vietnam devalues currency by 8.5 percent
http://sg.news.yahoo.com/ap/20110211...n-1200f1f.html

he State Bank of Vietnam said in a statement on its website that the U.S. dollar will buy 20,693 Vietnamese dong compared with the previous rate of 18,932 dong per dollar. The statement also said the bank has narrowed the band in which the dong can move from 3 percent to 1 percent.

Originally Posted by sydney6174

Vietnam devalues currency by 8.5 percent
http://sg.news.yahoo.com/ap/20110211...n-1200f1f.html

Well, should we write the Dong off?

This could be just a head fake. Temporary VND devaluation will allow mega global corporations to wire transfer their funds into Vietnam prior to the global currency realignment. I believe Euro will crack first then the Dollar. Unprecedented financial market volatilities is about to begin. Don't forget to bring your popcorn..

Beware the Ides of March. If Asian central banks initiate interest rate hikes in March and western central banks lag behind...Let's just say we have a perfect storm approaches for the Euro and the Dollar.
South Korea Keeps Rates on Hold, but March Raise Seen
http://www.cnbc.com/id/41522621

"The central bank therefore decided to take a breather, and is seen raising rates in March. I think the BOK will raise rates to 3.75 percent by the end of this year, as the economic situation has recovered to that seen before the financial crisis," he added.

Asia must work closely on capital flows: S. Korea
http://sg.news.yahoo.com/afp/2011021...x-0a37ea7.html

SEOUL (AFP) - – Asian countries must cooperate more closely to prevent excessive capital flows damaging financial market stability and overall economic growth, South Korea's finance minister said Friday.

Yoon Jeung-Hyun said it was urgent policymakers find policy measures "to mitigate the risk of excessive volatility in capital flows facing many emerging economies without negating the benefits of capital flows".

He was speaking at a meeting of financial officials from the 10-member Association of Southeast Asian Nations plus South Korea, Japan and China, convened to discuss cooperation and other issues in the post-crisis era.

Yoon said the 13 Asian countries should more than double the size of the Chiang Mai Initiative, to help the fund deal more effectively with any financial crisis that could follow sudden capital outflows.

Sudden and rather calculated dramatic capital outflow during the 1997 Asian financial crisis devastated regional economy for a decade or so. At least somebody is heeding lessons from history. The last financial crisis was manufactured by Allen Greenspan. His pupil Ben Bernanke is now the current architect. If the Federal Reserve starts to raise interest rates again, the results should be rather dramatic..

Here it comes..Looking for capital to intensify its flow into emerging markets.
Vietnam rate hike to help cut inflation: economist
http://sg.news.yahoo.com/afp/2011021...e-a179076.html

HANOI (AFP) - – Economists on Friday welcomed a larger than expected rise in a key Vietnamese interest rate as part of efforts to curb rising prices, but said that more needs to be done to boost the economy.

The State Bank of Vietnam announced on Thursday that its refinancing rate would rise from nine to 11 percent, but left two other measures, the base and discount rates, unchanged at nine and seven percent respectively.

It followed a currency devaluation last week -- the fourth in 15 months -- as the government struggles to address a complicated mix of problems including a huge trade deficit and high inflation.

Analysis from Capital Economics consultancy suggested the move, which was larger than predicted, would dampen domestic demand and "help to stop the economy from overheating".

Vietnam Bonds Drop on Concern Central Bank Will Tighten Policy
http://www.bloomberg.com/news/2011-0...en-policy.html