The exchange rates announced by commercial banks for the last two weeks show that the greenback has increased by 0.4-0.9% in value over the beginning of the year.

An importer of milk powder said he was suffering from the dollar revaluation. He buys powder milk from a sole distributor for his New Zealand dairy producer, who asks him to make payments in VND with the exchange rate at the payment time. With the unit price of $5,000/tonne and big imports, the losses the importer incurs due to the dollar price increase must be very big.

The revaluation of the dollar has been making importers suffer, especially the ones who import materials for processing and selling domestically. The importers do not have income sources in dollars from export; therefore, they have to buy dollars from banks at high price levels.

A foreign bank forecast that the greenback value would keep rising towards the end of the year as no bank wanted to fall short of dollars when the demand for dollars of importers increased.

The dollar revaluation in the last two weeks seems to come contrary to what happened in the first months of the year, when all banks purchased dollars at dirt-cheap prices, lower than the interbank exchange rates announced by the State Bank of Vietnam. At that time, banks just spent VND16,048 to get one dollar, while they had to pay VND16,100 for one dollar before.

An official from the State Bank of Vietnam said that the central bank always aimed to have a stable exchange rate of VND and the dollar. The favourite scenario of the central bank is to ensure the devaluation by 1% of the local currency against the greenback per year.

If the scenario is followed in 2007, it is expected that by the end of this year, the interbank exchange rate, which banks refer to when defining their exchange rates, will be VND16,262/US$1. The US$/VND inter-bank exchange rate has increased by 0.45% only so far this year, far from the 1% level. Therefore, analysts say that the VND should be devaluated further in the coming months, a necessary thing to encourage exports.

Nevertheless, as the supply of dollars is expected to be profuse, experts said that the VND was still under the pressure of revaluating, which means what happened in the first months of the year is likely to repeat. If so, the plan to devaluate the local currency by 1% this year would face challenges.

The experts have every reason to think so, because it is estimated that more than $2bil will be injected in Vietnam from now till the year’s end to buy shares of equitised banks (Vietcombank, Mekong Housing Development Bank, BIDV) when the banks issue shares to the public.

However, the official from the central bank said that the bank would buy foreign currencies once the foreign capital flowed into the market. “This should be seen as an opportunity to raise national foreign currency reserves,” the official said.

He also said that in order to buy the foreign currencies, the central bank would have to add a big volume of VND into circulation, but affirmed that it would be not difficult to withdraw VND from circulation.

“The only thing the central bank needs to consider is how much money to be withdrawn from circulation, and how much should be left in circulation in order to ensure economic growth,” the official said.

In the context of dollar excess, the deputy director of a joint stock bank said that it would be wiser to keep VND rather than dollars, because the interest rate on VND deposits, though decreasing, is still higher than the rate on US$ deposits.

Source: Tuoi tre