Dong tipped to fall further as investors seek dollars

Vietcombank, Vietnam’s top bank to handle trade payments, said US dollar sales more than doubled to $162 million on October 22 from $60 million on October 20

The Vietnamese dong may fall to VND17,000 per dollar soon due to strong demand for the US currency from importers and equity investors, bankers said.

“The rise in the dollar against the dong is not abnormal and is not synonymous with a deep depreciation in the dong,” Doan Huu Tue, of the central bank’s banking development strategy department, was quoted as saying in a government monetary market report.

“After balancing export-import targets, a reasonable exchange rate could be at a level of VND17,000 to a dollar.” He did not say when that level might be reached.

The central bank Monday set the mid-rate for interbank transactions at VND16,517 per dollar, little changed from a month ago.

“Apart from the usual dollar requirement from importers, a significant part of the rise in demand for the greenback came from foreign equity and bond investors who are under a mandate to restructure their portfolios, not just in Vietnam but globally,” an analyst at a bank in Hanoi said.

Stock traders said Monday foreign investors had been net sellers in the past 14 sessions to repatriate funds. The country’s stock market has fallen more than 60 percent so far this year after a gain of 23 percent in 2007.

The State Bank of Vietnam said in a weekly market report seen Monday that its base-rate cut of 1 percentage point to 13 percent early last week also contributed to the weakened dong.

The bank cut its base rate from October 21 as part of efforts to ensure economic growth and limit the impact of the financial crisis.

However, Vietnam’s bonds and currency still gained Monday after a government report showed inflation slowed in October.

The Hanoi-based General Statistics Office estimated on October 25 that prices fell 0.2 percent from September, the first decline on a monthly basis in more than a year and a half.

Government bonds rallied for a third day, with the yield on the benchmark five-year note trimming 9 basis points to 15.72 percent, the lowest since September 17, according to a daily fixing price from 10 banks, compiled by Bloomberg. A basis point is 0.01 percentage point.

The dong advanced 0.02 percent to VND16,844.5 per dollar as of 4:30 p.m. in Hanoi, according to data compiled by Bloomberg.

“The central bank is closely monitoring developments in the market in order to take timely measures to stabilize foreign currency demand and supply if needed,” it said in the weekly report.

Vietcombank, Vietnam’s top bank to handle trade payments, said US dollar sales more than doubled to $162 million on October 22 from $60 million on October 20, compared with average daily sales of around $50 million in the first nine months of 2008.

State-run BIDV, Vietnam’s second-largest bank by assets, said dollar sales also more than doubled to $50 million on October 23 from $20 million the previous day, the report said.

On the interbank market, the dollar was trading at VND16,840 to VND16,850 at 03:00 GMT Monday, at the top of the trading band of 2 percent against the central bank’s mid rate.

The interbank’s dollar rate was about 1.5 percent higher than a month ago, Reuters data showed.

Source: Agencies