HCMC – Two foreign banks have offered different forecasts of the Vietnam dong/U.S. dollar exchange rate for late this year and early next year, with one saying the local currency would stabilize and the other believing the dollar would get firmer.
The chief executive officer of HSBC Bank (Vietnam) Ltd. on Wednesday projected the exchange rate between the dong and the dollar would be stable toward the end of this year and early next year.
Tom W. Tobin was speaking in response to a question from the audience about the possibility of further depreciation of the dong at the “Vietnam Business Climate Outlook 2010-2011” luncheon organized by the European Chamber of Commerce in Vietnam (EuroCham) in HCMC.
The exchange rate will be “stable and below VND20,000 to the U.S. dollar this year and early next year. So, the next six months will be pretty stable,” Tobin said, referring to the HSBC projection that he presented at the event.
Meanwhile, the news site VnExpress.net on Wednesday quoted a Standard Chartered Bank research report as saying the dong would be trading at VND19,900 per dollar by the year-end but the rate would surge to VND20,000 early next year and VND20,800 by the end of the same year.
Last month, the State Bank of Vietnam devalued the dong by 2.09% to allow commercial banks to raise their dollar price to the highest level of around VND19,500. This was the second depreciation this year.
Tobin said the adjustment was “reasonable and realistic” as it took some pressure off the market and that the change would take effect for the rest of the year. The U.S. economy still coped with challenges and this is why the greenback is forecast not to put much pressure on further depreciation of the dong.
Furthermore, Vietnam is increasingly trading with non-U.S. counterparts and a lot of its trade is now intra-Asia. But, Tobin noted the dong stability would depend on macro-economic issues.
Tobin told reporters after the event that the Vietnamese Government and the State Bank of Vietnam had taken effective measures to balance macro-economic factors. “So, I think we will see more of the same for the second half of this year… more stability in the foreign exchange market and the money market.”
Tobin told the Daily about a number of proper actions by the Government and the SBV. They have helped the market by injecting more liquidity and regulating the gold market to curb speculation and putting some pressure on State-owned enterprises to sell their surplus dollar funds into the market.
“So, all these things help stabilize the market. I think they have given a very clear idea that they want that macro-economic stabilization is one of the priorities so that it gives the market a bit of comfort and they are acting according to that objective,” he said.
Tobin described the regulations governing safety ratios and charter capital increase at credit institutions as good objectives to make the banking sector stronger and more robust.
“Making it stronger is to make it better capitalized which would be better able to withstand shocks. Just look at the global financial crisis, some of the banks are not adequately capitalized to meet the shock of the system,” he said.
But according to the Standard Chartered report, achieving the growth target remains a priority for Vietnam, so the possibility of the dong being further devalued to prop up the export sector is high.
Companies in Vietnam may be finding it harder to repay dollar debt in the wake of its latest dong devaluation but demand for greenback loans is rising on speculation that the exchange rate will be stable in the short term, bankers said.