January 20th, 2011
Vietnam struggles to stabilize USD/VND exchange rate: report
Maintaining stability in the exchange rate between the dong and the US dollar will remain a challenge for policymakers, said the Economist Intelligence Unit in a recent report,.
Maintaining stability in the exchange rate between the dong and the US dollar will remain a challenge for policymakers, said the Economist Intelligence Unit (EIU) in a recent report.
The EIU forecased that the dong will depreciate from an average of VNDD19,127 per dollar in 2010 to nearly VND21,270 per dollar in 2015.
The SBV has devalued the dong on three occasions in the past year or so, in November 2009 and February and August 2010; the devaluations resulted in a cumulative drop of over 7% in the currency’s value against the dollar.
However, until there are clear signs that the trade deficit is narrowing and inflationary pressures are receding, it is unlikely that downward pressure on the dong will ease.
In the next few years the SBV may try to engineer a controlled, gradual fall in the value of the local currency, but it will probably have to opt for further devaluations, a widening of the currency’s trading band, or both.
Vietnam struggles to stabilize USD/VND exchange rate: report
Maintaining stability in the exchange rate between the dong and the US dollar will remain a challenge for policymakers, said the Economist Intelligence Unit in a recent report,.
Maintaining stability in the exchange rate between the dong and the US dollar will remain a challenge for policymakers, said the Economist Intelligence Unit (EIU) in a recent report.
The EIU forecased that the dong will depreciate from an average of VNDD19,127 per dollar in 2010 to nearly VND21,270 per dollar in 2015.
The SBV has devalued the dong on three occasions in the past year or so, in November 2009 and February and August 2010; the devaluations resulted in a cumulative drop of over 7% in the currency’s value against the dollar.
However, until there are clear signs that the trade deficit is narrowing and inflationary pressures are receding, it is unlikely that downward pressure on the dong will ease.
In the next few years the SBV may try to engineer a controlled, gradual fall in the value of the local currency, but it will probably have to opt for further devaluations, a widening of the currency’s trading band, or both.
This will partly reflect the fact that Vietnam’s meagre foreign-exchange reserves mean that the central bank will not be able to support the exchange rate in the event of strong downward pressure on the dong.
According to the latest available data from the IMF, foreign-exchange reserves fell to US$14.1bn (the equivalent of about eight weeks of imports) in September, from a high of US$26.4bn in March 2008.
The perceived instability of the currency also influences the willingness of Vietnamese to hold dong—the country’s residents tend to dump the local currency in favour of gold and US dollars when domestic inflation rises and downward pressure on the dong increases.
http://vietnambusiness.asia/vietnam-struggles-to-stabilize-usdvnd-exchange-rate-report/
