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Central bank chief reassures forex market on US dollars   2010-06-25 - Viet Nam News

Enterprises are not trying to accumulate US dollars because of worries about supplies or exchange rate risks, State Bank of Viet Nam Governor Nguyen Van Giau told Viet Nam News yesterday, June 24, in a response to rumours published in several online newspapers.

"The forex market is going smoothly and supply and demand are well-balanced," said Giau, vowing to find out who initiated the rumours that enterprises were worried about a looming shortage of US dollars, rising inflation, a growing trade deficit and foreign exchange risks, prompting them to flock to US dollars as a safe haven.

"Absolutely not!" said Vietcombank treasurer Pham Thanh Ha. "There’s no justification for such beliefs at this time because, at least at Vietcombank, foreign exchange trading is going well."

The demand for dollars, in fact, was not as high as it had been several months ago, suggesting no particular stress on the market, Ha added.

"Sometimes, the dollars we have brought in have outnumbered those sold," he said.

Asia Commercial Bank also denied seeing any unusual activity in the forex market.

The demand for dollars typically rise in the second and third quarters of each year as enterprises need dollars to pay for imported raw material and consumer products to meet rising demands at the end of the year.

The interbank rate yesterday remained at VND18,544 per US dollar, while commercial exchange rates at banks remained below the upper limit of the daily trading band, suggesting a healthy situation. Vietcombank yesterday quoted buy/sell prices of VND18,950/18,990 per dollar.

Dramatic increase

However, trading volume on the interbank market last week for the first time passed the level of VND100 trillion (US$5.28 billion), increasing by 22 per cent over the previous week to VND107.56 trillion ($5.68 billion).

The dramatic increase in interbank trading volume may have stirred concerns about a growing lack of liquidity at some banks, although a decline in lending interest rates should have allayed fears.

The average interest rate on loans in Vietnamese dong was off 0.02-0.44 percentage points to range of 6.5-11.65 per cent per year, while the overnight interbank rate was down from 6.52 per cent to 6.5 per cent per year.

Giau warned, however, that the State Bank would not make concessions to banks which borrowed money on the interbank market to re-lend to borrowers.

"This practice is risky to the banking system," Giau told reporters at a meeting last week.

Giau told that meeting that, in the first few months of the year, about 15 banks had raised money on the interbank market equal to as much as 50 per cent of the capital they had raised in commercial deposits (compared to a maximum of 20 per cent as regulated by law).

However, the rate had been lowered to 21 per cent at these banks.

The State Bank continued to hold VND140 trillion ($7.39 billion) in commercial paper and was committed to managing the monetary market flexibly, Giau said.

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