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Central bank expects dollar supply to rise on anti-hoarding move   2009-07-11 - TN

The State Bank of Vietnam expects the supply of dollars will increase this half as the central lender applies “reasonable” measures to stop exporters from hoarding the US currency. 


The state bank will manage the exchange rate of the dong in a “flexible” manner to ease a shortage caused by the financial crisis, the central lender said in a statement on the government’s website, quoting Nguyen Quang Huy, head of the Foreign Exchange Management Department in Hanoi.


The central bank will keep a close watch on dollar trading at money changers and commercial banks, limit activity in the black market, and try to prevent exporters from speculating on the US currency, Huy said, without giving specific measures.


It will ensure forex supply to meet importers’ demand for buying goods essential for the economy, he said, reiterating earlier comments from the central bank.


The dong has weakened 1.8 percent this year, according to Bloomberg data. The currency Friday traded at VND17,802 per dollar, the same rate as Thursday, as of 3:21 p.m. in Hanoi and compared with VND17,796 a week ago. The State Bank of Vietnam controls the dong by only allowing commercial banks to buy and sell the currency within a 10 percent band.


“Over the recent times the forex market has been facing constraints” because businesses were hoarding dollars on fears of the global crisis, and speculators took the chance to make profit on the black market, Huy said.


“Many exporters haven’t sold their dollar receipts to banks, causing a dollar shortage and higher exchange rates in the black market,” he said.


The government’s interest rate subsidy package provided low lending rates in the dong and for longer terms, which has led businesses to hold dollars and only borrow dong, Huy also said.


Sufficient dollar supply


Vietnam expects more inflow of dollars this half with the disbursement of about US$4 billion of foreign direct investment (FDI), and as much as $1.5 billion of loans from the World Bank and Asian Development Bank for the entire year, the statement said.


The country also expects overseas Vietnamese to transfer up to $3.2 billion in the second half, bringing total remittances this year to about $6 billion, Huy said.


He said the Ministry of Industry and Trade forecast this year’s trade deficit of Vietnam to be less than $10 billion.


Still, the money sent back by overseas Vietnamese and laborers working abroad is expected to be around 20 percent below last year’s level of $7.2 billion, Huy said.


Overseas remittances, one of the key foreign exchange sources along with FDI inflows that help Vietnam offset its trade deficit, have been dropping due to the global economic recession.


Le Xuan Nghia, vice chairman of the government’s National Financial Supervisory Commission, said Thursday he expected the country’s budget deficit to reach between $1 billion and $1.5 billion.


“The deficit could put pressure on the forex rates but the government is capable of handling it,” he said at a meeting in Hanoi.


Vietnam’s current forex reserves total more than $20 billion, he said.

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