Vietnam placing more importance on forex stability, Dragon says

Vietnam’s central bank is placing greater importance now than earlier this year on managing the stability of the country’s foreign-exchange market, fund manager Dragon Capital said in a note to investors.

The so-called official exchange rate of the Vietnamese dong against the US dollar was about 17,856 per dollar as of Friday, compared with 17,483 at the end of 2008. On unofficial markets, the currency’s exchange rate is fluctuating between 18,200 and 18,300 per dollar, according to the research note from Ho Chi Minh City-based Dragon. “Over the past quarter, indications are that the State Bank of Vietnam has shifted tact from expanding credit to managing the foreign exchange” rate, Dragon wrote in a note Thursday. “Dollar injections (Vietnamese dong subtractions) are the likely policy component in rising Vietnamese dong interest rates.” Australia & New Zealand Banking Group Ltd., which predicted last month that the Vietnamese central bank would devalue the dong by 4 percent by the end of the year, this month said that “pressure for greater flexibility” in the exchange rate is increasing, citing a decline in the country’s foreign reserves. Vietnam’s foreign-exchange reserves dropped to US$17.6 billion by the end of June from $23 billion at the end of 2008, according to the Asian Development Bank. HSBC Holdings Plc said this month it expects “modest” depreciation in the official exchange rate to 18,200 dong per dollar “in the next few months.” The State Bank of Vietnam is working with international organizations such as the Asian Development Bank and the World Bank to bolster the country’s foreign-exchange reserves and prevent instability in the dong, central bank Governor Nguyen Van Giau said this week. “Vietnamese dong liquidity is getting tighter,” Dragon said. “Dollars are available, but domestic sentiment for the Vietnamese dong is uninspired.” Source: Bloomberg