Written by Reuters
Friday, 04 December 2009 00:50
HANOI: Vietnam’s central bank is prepared to intervene on a “very big scale” to stabilise the beleaguered dong, backed by foreign exchange reserves of more than US$16 billion (RM53.92 billion), a deputy governor said yesterday.
The comments by Nguyen Van Binh come a week after Vietnam devalued the dong for the third time since the start of 2008 to relieve pressure on the currency in the face of US dollar hoarding.
The head of a major Vietnamese bank said US$2 billion in intervention might stabilise the dong, but others were sceptical the central bank had sufficient reserves to allow sustained intervention.
While the closely managed currency was quoted yesterday within the dollar/dong trading band set by the central bank, the unofficial rate remained well outside the band.
“We are ready to carry out very big-scale (intervention) in order to keep the exchange rate stable in the market,” the deputy governor of the State Bank of Vietnam said.
“It will depend on the real condition in the market. We can sell as much as we need in order to make the market stable,” Binh told reporters.
“According to our figures, frankly speaking, our reserves are more than three months of imports. That is consistent with international standards,” he said. “I think they are more than US$16 billion.”
The International Monetary Fund (IMF) said yesterday reserves were below 2½ months of imports, but the reason for the different estimates was not immediately clear.
Last week, the central bank shifted the mid-point it sets for daily trading down by more than 5% overnight and reduced the trading band of the dong to 3% either side of the mid-point from 5%.
The central bank also said it would call on exporters to sell it their foreign exchange to help relieve the dollar shortage.
In remarks prepared for Vietnam’s annual donors’ meeting yesterday, Binh said those were a “first step”.
The government set that policy in motion by ordering the big exporters, including monopolies Petrovietnam and Vinacomin, to sell their dollars to the central bank.
The chief executive of Vietcombank, which is responsible for ensuring foreign exchange supplies for the country’s trade payments, said intervention could work.
“If the State Bank sells around US$2 billion, the market will surely return to normal status,” Nguyen Phuoc Thanh was quoted as saying in the official Thanh Nien daily.
However, Matt Hildebrandt, an economist at JPMorgan in Singapore, said the level of reserves suggested limited room for intervention.
“If it gets below three months, it’s a red flag,” he said. “Reserves are probably a little bit lower than you’d like in order to feel comfortable, but they are not low enough to say that Vietnam is on the verge of a crisis.”
At the end of September, only Pakistan and Bangladesh had smaller reserves than Vietnam among the Asian countries monitored regularly by Reuters.
Indeed, a treasurer at a foreign bank in Vietnam said the deputy governor’s comments were likely no more than verbal intervention.
“Continuous intervention is not sustainable given the continuing current account deficit,” he said, declining to be identified because he is not authorised to speak to the media.
Previous attempts to control a long-term slide in the dong included two devaluations last year and widening the currency’s trading band several times.
Yesterday, the dong was quoted in the official market at 18,473 per dollar, 2.85% below the mid-point.
In unofficial markets, the dong was quoted at 19,350, more than 7% below the mid-point, although it was stronger than levels the day before the devaluation was announced.
Dollar hoarding is widespread in Vietnam among ordinary people and companies alike.
Many big-ticket business transactions are conducted in dollars, but their supply has been squeezed by the global downturn, which hit foreign exchange earners such as exports, remittances and foreign investment.
Two devaluations of the dong in 2008 had also fed expectations for further devaluations.
