The VND-USD exchange rate is expected to remain stable from now to theend of this year and the tendency will move on during the 2014-2015period.
Le Quang Trung, deputy general director andhead of treasury of Vietnam International Bank (VIB), said that therate would hover around 21,300-21,500 VND to the dollar in the lastquarter and enterprises should take full advantage of the forexstability to reduce the capital cost. The Saigon Times Daily talkedwith Trung over the issue. Excerpts:
* What is the foundation for your prediction?
There are several factors that support the forex rate stability suchas a low trade deficit at around 600 million USD in the January-Augustperiod, and the trade deficit is expected at around 3 percent of exportrevenue (around 3-4 billion USD) for 2013. Foreign reserves remain high,at 27 billion USD, while foreign direct investment (FDI) disbursementand overseas remittance remain stable.
The ‘hot’money flow into Vietnam is not huge, accounting for around 1 percent ofthe total inflows in Asian emerging markets. If the capital iswithdrawn, it will cause impacts on the forex rate in the short term butthe impacts are not strong. In addition, Circular 37/2012/TT-NHNN hassharply reduced the number of dollar borrowers.
Concerning the factors that may put pressure on the exchange rate, thedemand for the dollar often runs high towards the end of the year forsettlements of import payments. In addition, the State Bank of Vietnammust continue to import gold for domestic sales.
* Does it mean that enterprises with foreign currency demands can set their mind at rest?
Yes. This is a favourable chance for enterprises to take advantage ofexchange rate stability and optimise financial and capital expenses andimprove profits.
* What can enterprises do to take advantage of the exchange rate stability?
Enterprises should pay attention to exchange rate risk insurancesolutions such as Traditional FX Forward, Par Forward, Forward with FXorder, FX with Deposit and Participating forward. There are alsosolutions to optimise the conversion of foreign currencies into VND,such as currency and interest rate swaps. The solutions are appliedflexibly at various points of time depending on the exchange rate,capital flows of enterprises and order terms. For foreign currenciesother than the USD, enterprises need consulting on the transaction timeby comparing fluctuations of the exchange rate of the currency and thedollar. Notably, VIB does not charge any fees on these services.
* What do you comment on the foreign currency demand of local enterprises over the past year?
Outstanding foreign currency loans in the banking system have declined11 percent against late 2012, meaning that the demand has decreasedsharply due to Circular 37. Secondly, the market has offered manyflexible instruments for enterprises to choose from, instead of directlytaking out foreign currency loans.
* But thestability has resulted from sluggish business operations and the weakeconomy. What should be done to give back strength to enterprises?
In previous years, we accepted inflation to push up economic growth.But the model is no longer suitable to the current circumstances. In thelong term, devaluating the VND to raise competitiveness is not good andthat needs to be adjusted.
If we want to usemonetary policy to save enterprises, it will not work. I think we shouldcombine monetary policy with fiscal policy. For instance, theGovernment should give fiscal policy such as tax reductions andexemptions and stimulus packages to support enterprises, which ifcombined with monetary policy will give strong assistance to businesses.
The problem is that there is no much room formonetary policy to maneuver now as deposit rates cannot drop further.Meanwhile, total outstanding loans of the banking sector compared togross domestic product (GDP) is 130 percent, meaning that people’sdeposits make up a large ratio in investment in the economy. If depositrates are lowered, the smart money flow will not run into the bakingsystem. Who will share the burden with the economy at a time othercapital mobilisation channels such as bond and stock market are notworking? I think that monetary policy has hit the bottom. We cannotrevise down interest rates any more as the ceiling rate has nearlyapproached the peak of inflation.-VNA
Le Quang Trung, deputy general director andhead of treasury of Vietnam International Bank (VIB), said that therate would hover around 21,300-21,500 VND to the dollar in the lastquarter and enterprises should take full advantage of the forexstability to reduce the capital cost. The Saigon Times Daily talkedwith Trung over the issue. Excerpts:
* What is the foundation for your prediction?
There are several factors that support the forex rate stability suchas a low trade deficit at around 600 million USD in the January-Augustperiod, and the trade deficit is expected at around 3 percent of exportrevenue (around 3-4 billion USD) for 2013. Foreign reserves remain high,at 27 billion USD, while foreign direct investment (FDI) disbursementand overseas remittance remain stable.
The ‘hot’money flow into Vietnam is not huge, accounting for around 1 percent ofthe total inflows in Asian emerging markets. If the capital iswithdrawn, it will cause impacts on the forex rate in the short term butthe impacts are not strong. In addition, Circular 37/2012/TT-NHNN hassharply reduced the number of dollar borrowers.
Concerning the factors that may put pressure on the exchange rate, thedemand for the dollar often runs high towards the end of the year forsettlements of import payments. In addition, the State Bank of Vietnammust continue to import gold for domestic sales.
* Does it mean that enterprises with foreign currency demands can set their mind at rest?
Yes. This is a favourable chance for enterprises to take advantage ofexchange rate stability and optimise financial and capital expenses andimprove profits.
* What can enterprises do to take advantage of the exchange rate stability?
Enterprises should pay attention to exchange rate risk insurancesolutions such as Traditional FX Forward, Par Forward, Forward with FXorder, FX with Deposit and Participating forward. There are alsosolutions to optimise the conversion of foreign currencies into VND,such as currency and interest rate swaps. The solutions are appliedflexibly at various points of time depending on the exchange rate,capital flows of enterprises and order terms. For foreign currenciesother than the USD, enterprises need consulting on the transaction timeby comparing fluctuations of the exchange rate of the currency and thedollar. Notably, VIB does not charge any fees on these services.
* What do you comment on the foreign currency demand of local enterprises over the past year?
Outstanding foreign currency loans in the banking system have declined11 percent against late 2012, meaning that the demand has decreasedsharply due to Circular 37. Secondly, the market has offered manyflexible instruments for enterprises to choose from, instead of directlytaking out foreign currency loans.
* But thestability has resulted from sluggish business operations and the weakeconomy. What should be done to give back strength to enterprises?
In previous years, we accepted inflation to push up economic growth.But the model is no longer suitable to the current circumstances. In thelong term, devaluating the VND to raise competitiveness is not good andthat needs to be adjusted.
If we want to usemonetary policy to save enterprises, it will not work. I think we shouldcombine monetary policy with fiscal policy. For instance, theGovernment should give fiscal policy such as tax reductions andexemptions and stimulus packages to support enterprises, which ifcombined with monetary policy will give strong assistance to businesses.
The problem is that there is no much room formonetary policy to maneuver now as deposit rates cannot drop further.Meanwhile, total outstanding loans of the banking sector compared togross domestic product (GDP) is 130 percent, meaning that people’sdeposits make up a large ratio in investment in the economy. If depositrates are lowered, the smart money flow will not run into the bakingsystem. Who will share the burden with the economy at a time othercapital mobilisation channels such as bond and stock market are notworking? I think that monetary policy has hit the bottom. We cannotrevise down interest rates any more as the ceiling rate has nearlyapproached the peak of inflation.-VNA
