Viet Nam Money - Dong falls as hefty imports boost dlr demand

Monday, May 12, 2008
The Vietnamese dong (VND) fell to a seven-month low against the U.S. dollar on Monday due to increased demand for the foreign currency from importers because of a widening trade deficit, bankers said.

The dollar hit 16,125 dong on Monday, the highest since October 4, 2007 when it stood at 16,126 dong. The central bank also allowed the dollar to rise to 15,995 dong in its official exchange rate, the highest for nearly two months.

"There has been a shortage of U.S. dollars in banks recently," Ho Huu Hanh, head of the State Bank of Viet Nam's branch in Ho Chi Minh City told Thanh Nien newspaper over the weekend.

The Finance Ministry-run Viet Nam Financial Times newspaper said on Monday that the central bank has sold more than $800 million to banks in the past month to meet demand from customers, mainly for imports of fuel, steel, cars and electronic parts.

Viet Nam's trade deficit in the first four months of 2008 jumped nearly four times from a year earlier to $11.1 billion as January-April imports surged 71% to $29.36 billion, government figures show.

Commercial banks have started various promotions to attract dollar deposits.

The Military Bank said on Monday it has started selling short-term dollar bills to raise $20 million over two months and the Ho Chi Minh City-based Eximbank announced prizes to attract savings in dollar, gold and the Vietnamese dong.

Dong funds have also been tightening. Major banks offered overnight dong loans at 9% to 11% on Monday, up from 5-10% in late April VNIBOR.

Rates on six-month dong loans also rose to between 10% and 14% on Monday, from 10-13% on April 28.

The Vietnam Financial Times newspaper report said the central bank planned to absorb 10 trillion dong from the market in near future as a measure to control inflation, a move that further tighten dong liquidity. (Reuters)