VND slumps to lowest level against USD in 2016

06.06.2016

The slump was blamed on recent fluctuations in international foreign exchange markets, including China’s devaluation of its yuan by 0.45 per cent, which saw it drop to its lowest level in the last five years.

Speculation that the US Federal Reserve could hike interest rates possibly this month was another factor.But some market observers believed that the dollar’s rise could be short-lived since it was caused by banks buying the greenback to balance their foreign currency positions.A day later the dong gained against the dollar though the average daily interbank exchange rate fixed by the central bank edged upwards.On Tuesday the dollar fell by VND20-25 to VND22,425-22,430. Vietcombank bought the currency at VND22,360 and sold it at VND22,430, down VND20 from the previous day.

On the unofficial market in HCM City, the dollar was bough at VND22,380 and sold at VND22,420, down VND70 from Monday.The forex rates have still been remarkably stable this year although late last year the State Bank of Viet Nam (SBV) begun a new foreign exchange management mechanism to cope with changes in the market, especially the global market.Under it, the reference rate, or the inter-bank exchange rate, will be managed more flexibly and could changed regularly, even daily. The central bank manages the foreign exchange market through a relatively stable inter-bank rate and daily trading bands.Some analysts said the stability in the forex rate is not exactly good for domestic firms because the dong has been appreciating even as many countries recently devalued their currencies.

This has put great pressure on Vietnamese exporters in terms of prices in overseas markets.The depreciated yuan has brought China’s exports a big advantage by making Chinese products very cheap.For instance, on May 30 the central parity rate of the yuan weakened by 294 basis points to 6.5784 to the US dollar, the lowest level since February 2011.This is expected to affect Viet Nam’s exports and imports because when the yuan becomes weaker than the dong, Chinese goods imported into Viet Nam will be cheaper and more competitive than Vietnamese items.Vietnamese garment exporters could lose out since their foreign orders will go to China when prices there will be cheaper.The Vietnamese central bank should adjust the forex rate more flexibly in ways that can weaken the dong against other currencies.

Besides, the Government should rethink some other foreign exchange policies including the interest rate for dollar deposits, compulsory reserves and the foreign exchange position.It is also necessary for the central bank to soon develop a foreign currency market to meet businesses’ and individuals’ demand for foreign currencies.  

Source: Vietnam.net

Photo: File