US dollar exchange rate increases

14:03 | 22/05/2015 Finance - Banking

(VEN) - Commercial banks continued to increase the trading price for US dollars on May 12. The bid prices of banks increased by VND5-40/dollar to reach VND21,650-21,680/dollar while the ask prices increasing by VND10-30/dollar to range between VND21,725-21,745/dollar. The inter-bank average exchange rate was maintained at VND21,673 per dollar. In general, the rise of the exchange rate has affected Vietnam’s socioeconomic targets and capacity to respond to negative impacts on the international financial market.

US dollar  exchange rate increases

After the one percent exchange rate adjustment by the State Bank of Vietnam (SBV) between the Vietnamese dong and US dollar in early May, bank exchange rates were set to new levels. According to financial experts, the recent rise of the exchange rate contributed to easing pressure on the Vietnamese dong, otherwise it could support the development of the black market and made it more difficult for companies to buy and sell foreign currency.
Enterprises said increased prices for the US dollar would make imported products more expensive and less competitive than the domestically-made ones. The balance of trade would then be improved and the trade deficit would also be reduced. Vietnam’s trade deficit in the first four months of this year was US$3 billion.
Although the devaluation of the dong might seem to have positive impacts, it was only a marginal change, while adjustments in other countries in the region were at much higher levels such as Indonesia at 5.7 percent and Malaysia at 2.9 percent. In this case, companies borrowing US dollars and their production and business activities mainly serving the domestic market will face greater pressure, while foreign-invested firms targeting export markets in general will enjoy more benefits.
HSBC bank believed the SBV’s one percent exchange rate adjustment was an active move to help curb the trade deficit, improve the balance of payments and boost exports. Vietnam’s policy on exchange rates was now more flexible and it would help boost market liquidity.
According to economist, Dr. Vu Dinh Anh, the devaluation of the dong showed that the SBV was taking a drastic position in order to send a clear message so that enterprises could draft their business plans from now until the end of the year.
Regarding the increasing public debt and a possible pressure on inflation as a result of the adjustment, Dr. Vu Dinh Anh said these were not worrying issues as the payment in the Vietnamese dong (including principal and interest) will increase but only in the one percent range. In addition, Vietnam pays its debts from different sources of foreign currencies which will ease the debt pressure owing to the fluctuations of exchange rates.
As for inflation, the average rise for the first four months of this year was only at 0.8 percent, and almost no increase if compared with late 2014 (only 0.01 percent). As such, the rise of the exchange rate would have a negligible effect on inflation and Vietnam will possibly curb inflation at a much lower level set for this year.
In general, economists and bank leaders believed that the adjustment would not put pressure on inflation and public debt, while helping enterprises be more active in their business plans. 

                                                                                                                                                                         By Thanh Thanh