Dong/dollar exchange rate to cool down in July

The dollar prices, which have been unchanged over the last two years, suddenly increased slightly in June 2012. Especially, commercial banks quoted the same price levels for both selling and buying prices, the thing that has not been seen over the last many years.

The dollar prices have been increasingly more sharply in the last two weeks. The dollar selling price quoted by commercial banks is now at VND21,036 per dollar, hitting the ceiling level.

The “ceiling level” is understood as the highest possible price level at which banks can apply in the transactions between them and clients. The ceiling level is calculated by the interbank exchange rate announced daily by the State Bank of Vietnam plus the trading band of 1 percent.

The black market has also heated up with the dollar trading at VND21,200 per dollar.

Observers have noted two special things in the current green back price increases. First, the dollar price increase can be seen not only at the official and the black markets, but the State Bank Exchange itself has also raised the dollar selling price as well.

By June 16, the exchange rate quoted at the exchange had been raised from VND20,950 to VND21,036 per dollar.

Second, the gap between the selling and the buying prices has been very narrow of between VND6 and VND10. This shows that the dollar demand has really increased sharply. Prior to that, the dollar price increase was thought to be just a temporary move by the banks to improve their foreign currency positions.

This is for the third time the dollar price increases so far this year, though people were told that they should not expect any price fluctuations this year. However, the two previous price fluctuation fits did not cause any big problems, because the dollar price quickly reduced later. What about the third price increase?

Since late 2011, the State Bank of Vietnam has been keeping the dong/dollar interbank exchange rate stable at VND20,828 per dollar. The exchange rate stabilization has been hailed as a success of the State Bank to stabilize the exchange rate to facilitate the export and import.

However, analysts lately have given the warning that the stable exchange rate for too long may do more harm than good, because this does not help encourage export.

In its official statements, the State Bank, while reaffirming its policy not to devaluate the dong, has stated that it does not intend to keep the exchange rate unchanged at any costs, but it would make flexible adjustments in accordance with the supply and demand basis.

Dr. Nguyen Tri Hieu, a well-known finance expert said the finance expert has been put under the pressure, which relates to the fact that commercial banks have to finalize the gold trade on account prior to June 30.

The dollar price increase has also been attributed to the narrower gap between the dong and the dollar deposit interest rates, which has prompted people to buy dollars to deposit at commercial banks.

If these are the true reasons behind the recent dollar price increases, the problems would be settled soon, which means the exchange rate would cold down by early July 2013.