BUSINESS
Vietnam's Central Bank keeps forex rate to curb inflation
The Central Bank of Vietnam (CBV) will continue to keep the foreign exchange rate of the Vietnamese dong against the US dollar as the bank assured the public that it is fully capable of meeting the market demand due to its high foreign reserves, CBV deputy governor Le Minh Huong told local media on Thursday.
The announcement was made amid rumours in recent days that the CBV would change the forex rate, which has remained stable since December 2011, in order to curb inflation and stabilise the macro economy in pursuant to government instructions, China's Xinhua news agency reported.
Because of such rumours, in the last three days, the forex and gold markets in Vietnam witnessed some unusual changes. The disparity between domestic and global gold prices was expanded, reaching almost five million VND (roughly US$240) per tael in favour of the domestic one, which is much higher than the goal set by the CBV at US$19.
Some major commercial banks bought a huge amount of the greenbacks, raising speculations that the banks are planning to import more gold.
On the black forex market, the US dollar was traded with higher prices than weeks ago, surpassing 21,000 VND per dollar.
In 2012, the CBV kept the inter-bank exchange rate stable at 20,828 VND per US dollar. Meanwhile the official market exchange rate was at around 20,850 VND per dollar, although at a time it soared to 21,295 VND per dollar.
Local economists recently suggested that the CBV should devaluate the Vietnamese dong by three to four percent to boost exports and improve the competitiveness of local producers. They said that maintaining the 2012 foreign exchange policy this year may not be as beneficial as it was in last year.
Nguyen Duc Tinh, director of the Hanoi-based Vietnam Centre for Economic and Policy Research, said that the bank should actively devaluate the Vietnamese dong by about three percent with a one to 1. 5 percent margin implemented throughout the year to support exports and improve competitiveness.
Nguyen Tri Hieu, another banking expect, said rather than devalue the Vietnamese dong, the central bank should merely allow the exchange rate to fluctuate as much as three percent, and the most appropriate timing is within the first quarter this year.
However, Hieu said that while the adjustment would benefit exporters, it could also cause instability and a loss of confidence in the Vietnamese dong. In this context, the CBV said it would remain cautious about changing the forex rate, because the government has targeted to keep inflation rate this year lower than last year while stimulating a higher economic growth.
Raising the prices of imported goods would also add to inflationary pressure while making it more difficult to repay foreign debts, said Nguyen Thi Hong, head of the Monetary Policy Department under CBV.
Hong said that the adjustment, as recommended by many local experts recently, needs to be considered carefully on the basis of reconsidering the overall relationship of monetary policy management in 2013.
CBV's cautiousness is partly based on the fact that the consumer price index (CPI), a calculator for the inflation increase, in January soared 1.25 percent against the previous month. It is expected to rise further this month due to the surging demand for goods and services during the traditional Lunar New Year.
Given such a context, devaluing the Vietnamese dong will be like adding fuel to the fire, thus making the task of controlling inflation even harder, said the CBV official.
On the view that devaluation will boost exports of Vietnamese goods, Hong said that because domestic production is heavily dependent on imported raw materials, an adjustment would raise prices of these imported materials using Vietnamese dong, thus adding more pressure on the current burden.
Also, devaluing the Vietnamese dong needs to be reconsidered in regards to a number of other issues, including the obligation to repay the foreign debts, most of which have to be paid in dollars, but is calculated in Vietnamese dong.
On reports that the price of the greenback offered by local banks has inched up recently, Hong said this may be a speculative move from institutions which are betting on an official devaluation.
CBV deputy governor Le Minh Huong told local media that there is no dollar shortage, as the supply is very abundant. Last year, the central bank bought US$15 billion for its reserves, and another US$5 billion since the beginning of this year, making the country's foreign reserves at the highest level so far.
Vietnam's foreign exchange reserve was officially reported by the central bank late last year to be sufficient to cover 12 weeks of imports, meeting the regular international norm, while local and foreign experts estimated it to exceed US$20 billion by the end of this year.
The announcement was made amid rumours in recent days that the CBV would change the forex rate, which has remained stable since December 2011, in order to curb inflation and stabilise the macro economy in pursuant to government instructions, China's Xinhua news agency reported.
Because of such rumours, in the last three days, the forex and gold markets in Vietnam witnessed some unusual changes. The disparity between domestic and global gold prices was expanded, reaching almost five million VND (roughly US$240) per tael in favour of the domestic one, which is much higher than the goal set by the CBV at US$19.
Some major commercial banks bought a huge amount of the greenbacks, raising speculations that the banks are planning to import more gold.
On the black forex market, the US dollar was traded with higher prices than weeks ago, surpassing 21,000 VND per dollar.
In 2012, the CBV kept the inter-bank exchange rate stable at 20,828 VND per US dollar. Meanwhile the official market exchange rate was at around 20,850 VND per dollar, although at a time it soared to 21,295 VND per dollar.
Local economists recently suggested that the CBV should devaluate the Vietnamese dong by three to four percent to boost exports and improve the competitiveness of local producers. They said that maintaining the 2012 foreign exchange policy this year may not be as beneficial as it was in last year.
Nguyen Duc Tinh, director of the Hanoi-based Vietnam Centre for Economic and Policy Research, said that the bank should actively devaluate the Vietnamese dong by about three percent with a one to 1. 5 percent margin implemented throughout the year to support exports and improve competitiveness.
Nguyen Tri Hieu, another banking expect, said rather than devalue the Vietnamese dong, the central bank should merely allow the exchange rate to fluctuate as much as three percent, and the most appropriate timing is within the first quarter this year.
However, Hieu said that while the adjustment would benefit exporters, it could also cause instability and a loss of confidence in the Vietnamese dong. In this context, the CBV said it would remain cautious about changing the forex rate, because the government has targeted to keep inflation rate this year lower than last year while stimulating a higher economic growth.
Raising the prices of imported goods would also add to inflationary pressure while making it more difficult to repay foreign debts, said Nguyen Thi Hong, head of the Monetary Policy Department under CBV.
Hong said that the adjustment, as recommended by many local experts recently, needs to be considered carefully on the basis of reconsidering the overall relationship of monetary policy management in 2013.
CBV's cautiousness is partly based on the fact that the consumer price index (CPI), a calculator for the inflation increase, in January soared 1.25 percent against the previous month. It is expected to rise further this month due to the surging demand for goods and services during the traditional Lunar New Year.
Given such a context, devaluing the Vietnamese dong will be like adding fuel to the fire, thus making the task of controlling inflation even harder, said the CBV official.
On the view that devaluation will boost exports of Vietnamese goods, Hong said that because domestic production is heavily dependent on imported raw materials, an adjustment would raise prices of these imported materials using Vietnamese dong, thus adding more pressure on the current burden.
Also, devaluing the Vietnamese dong needs to be reconsidered in regards to a number of other issues, including the obligation to repay the foreign debts, most of which have to be paid in dollars, but is calculated in Vietnamese dong.
On reports that the price of the greenback offered by local banks has inched up recently, Hong said this may be a speculative move from institutions which are betting on an official devaluation.
CBV deputy governor Le Minh Huong told local media that there is no dollar shortage, as the supply is very abundant. Last year, the central bank bought US$15 billion for its reserves, and another US$5 billion since the beginning of this year, making the country's foreign reserves at the highest level so far.
Vietnam's foreign exchange reserve was officially reported by the central bank late last year to be sufficient to cover 12 weeks of imports, meeting the regular international norm, while local and foreign experts estimated it to exceed US$20 billion by the end of this year.