Governor Nguyen Van Giau of the State Bank of Vietnam, the country’s central bank, told state media on November 25 that the Prime Minister would request several major state-owned corporations to sell part of their dollar holdings to local banks soon.
Giau did not specify about how much and which corporations will be asked to sell, but unveiling that the local companies are holding approx $10.3 billion, unchanged compared with the start of the year.
“Only several state-owned corporations which export natural resources and hold a significant amount of dollars are eligible to this move,” Governor Giau noted.
The state-run Vietnam Television said on November 25 the state-owned corporations are requested to $5 billion to $6 billion to the local banks, part of the government’s strong intervention to stabilize the forex market and macro situation.
On Wednesday’s morning, the central bank announced that it will raise base rates by one percentage point effective from December 1, 2009, and also devalued the Vietnamese dong by 5.4% from Nov. 26 to prevent a drain on the country’s forex reserves, boost exports while help local banks to boost liquidity.
Vietnam’s strong intervention is after its forex reserves dwindles to $16.5 billion from $22 billion at the start of the year according to the Wall Street Journal and on news that inflation escalated sharply by 4.35% this month, up from 2.99% in October and credit growth at end-Nov is up 34.5% since early 2009.
This is the third time Vietnam devalues its currency in two years, which is partly related to the recent and alarming deterioration of the trade gap. In the first eleven months of this year, trade deficit reaches $10.2 billion.
The base rate hike this time will not affect the country’s GDP growth, Minister of Planning and Investment Vo Hong Phuc said.
The central bank’s intervention will cool down ‘fever’ on the forex and gold markets in coming weeks and help stabilize the macro situation in the Southeast Asian country, domestic economists forecast.
Patrick Bennett, a foreign-exchange analyst with Societe Generale, said the pressure on the dong has been forcing the central bank to run down its dollar reserves but that the depletion may now become less pressing.
An analyst at Standard and Poor’s Ratings Services said that Vietnam’s devaluation of its currency has no “material impact” on its ability to service foreign debts as most of the country’s foreign debts are concessional, but means a higher local-currency burden on the government.
On the unofficial market, gold are trading at VND28.5 million to VND28.7 million/tael on Thursday’s noon and gold shops in Hanoi offered to buy dollar at VND19,150 and offered to sell at VND19,350. (Local source)
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