Monetary market sees positive changes

Thursday, June 19, 2008
There have been clear signs of the considerable improvement of the monetary market: the VN Index increases, banks have enough compulsory reserves and their liquidity has improved. Meanwhile, the VND/US$ exchange rate more truly reflects the supply and demand on the market.

Dollar shortage eased

On June 16, the State Bank of Vietnam published on its website the translated version of the report by securities firm Nomura, Tokyo, which said that there is not a high possibility of the VND’s sharp devaluation. The VND will bear modest pressure originating from the trade deficit. The pressure will decrease gradually if the government’s policy on slowing down economic growth has impacts on exports.

By posting a report by a foreign institution on its official website, it seems that the State Bank of Vietnam wants to imply the measures it will apply in the time to come. The report proves to have information that comes in line with the recent announcements by the government.

According to the report, the foreign currency reserves, not including gold, by the end of February 2008 had reached $26.3bil, much more than imports for three months. Meanwhile, the foreign debts by the end of 2007 had accounted for 29% of GDP, much lower than Thailand’s 59.7% seen in late 1996, when the Asian financial crisis took place. Therefore, there is nothing to worry about in regards to the foreign debts of Viet Nam.

The government of Viet Nam has decided to shift its focus from high economic growth to inflation control. Therefore, the forex policy will focus more on fighting inflation rather than improving the competitiveness of export products. The sharp devaluation of the VND would have the opposite effect: it would make inflation more serious. Therefore, the State Bank of Vietnam will not do that.

On June 17, businesses said that the ‘dual exchange rate’ (the official rate announced by commercial banks and the black market rate) situation had improved considerably. The gap between the actual exchange rate and the announced rate was lowered from VND1,200/US$1 to VND800-900/US$1, and then VND600US$1. This spells that the short supply of the dollar has been eased.

Bankers say that the move by the State Bank of Viet Nam on June 10 to adjust the official exchange rate has helped more dollars flow into banks.

Liquidity thirst over

According to the State Bank of Vietnam, in the week of June 9-13, right after the State Bank announced new decisions on interest rates, banks rushed to raise their deposit interest rates. The interest rates hovered around 15.84%-17.5% that week.

Last week, the State Bank offered to purchase valuable papers in big quantities of VND6-15tril per trading session, in order to help improve the liquidity of banks.

After a lot of efforts, the credit market has become more stable with the interest rates staying firmly at 17.5-18%. The 19% interest rate a bank offered several days ago has become abnormally high and the bank has stopped the programme to mobilise capital at this interest rate.

Currently, the interbank market interest rate is staying at 13% per annum, a sharp fall if noting that it once skyrocketed to 20%. (SGTT)