Since Mid- Jan 2012, the foreign currency exchange market, especially for USD, has shown stagnation in many banks of Vietnam. The exchange rate has become static, which is abnormal compared to the last years.
The exchange rate on the free market is close to the official one. People are advised to be cautious when investing into other channels such as gold or real estate. It is a signal that in 2012, the VND will regain its position.
Several days before Tet holiday, the price of USD in commercial banks dropped to VND21,000 a dollar (down VND106 to VND 116 a dollar, compared to previous days). Price of USD in the free market in those days was under VND21,000 a dollar. Also, transactions offices of the State Bank of Vietnam (SBV) increased buying USD at the price of VND 20,850 a dollar, VND230 a dollar higher than in previous days. In days leading up to Tet holiday, listed bid and ask prices of USD reduced VND20. A representative of a large commercial bank said that while the supply of USD was very abundant, consumers’ demand was not high enough. The negligible difference between USD/VND exchange rate in the free market and in banks is a strange phenomenon compared to previous years, when USD price often increased as the Lunar New Year holiday comes to a close.
The reason for this phenomenon is that last year, the SBV has managed the currency exchange rate actively and flexibly; from continuously adjusting interbank exchange rates, applying interest rate cap, to tightening activities of selling and buying foreign currencies, helping reduce currencies stock and unorganised foreign currency transactions. The severe sanctions for violations of foreign currency transaction regulations helped reduce the phenomenon of dollarisation. Moreover, current macroeconomic information is also an important reason behind the stable currency exchange rate. The supply of foreign currencies has become more abundant as 2011 remittances are up to US$9 billion, and other capital resources such as foreign direct investment (FDI) and official development aid (ODA) are still satisfactory. Meanwhile, import has also sharply fallen. Therefore, there is no imbalance of supply and demand of foreign currencies as before.
Another reason is that the difference between the dollar and VND deposit rates is up to 12 percent a year, causing people to prefer VND because it brings more profit than USD. Besides, it is important to mention that confidence has been recovered when currency exchange rate fluctuation was less than 1 percent at the end of the year, according to SBV’s commitments. Therefore, in 2012 the exchange rate will not be alarming and any fluctuation will not exceed 3 percent. If it is realized, people will no longer hoard dollars.
Besides, the price of gold as we left the old year and entered the new really made some smile and others cry. Those who insist that the gold price only increases and never falls have suffered big losses as the gold price decreased under VND 42 million per tael in the final transaction sessions in 2011. However, there were also many people “surfing” successfully when overcoming the fear against prediction of gold’s reducing prices, buying gold at the price’s bottom and “scoring” when gold price jumped again. World prices, domestic market regulations and currency exchange rates are big risks when investing in gold. However, high liquidity with sharp increase and decrease of prices are important factors helping this precious metal gain the first position in the ranking of investment channels in 2012. Nevertheless, experts advised that people should keep money deposited in the bank and wait for the opportunity to buy gold cheap. They should not buy gold at the moment, but wait for gold’s price to reduce more deeply. The gold price is forecast to drop to US$1,300/ounce or about VND37 million/tael.
As for the real estate market, whether it is effervescent or quiet will mostly depend on capital flows in the market. Targeting inflation restraint as a top priority this year, the Government has sent a message that the monetary policy will continue to be tightened. This year the SBV also targets to keep the credit growth of the entire banking system from 15 to 17 percent, lower than in 2011. That means capital provided to property enterprises, to investors, as well as to people with real demand for houses and land, will be restricted. Foreign flows into this market through foreign direct investment and remittances will also reduce when house prices are lower in many other countries. Those factors have confirmed that it is hard to profit from real estate investment in a year’s investment. According to experts, real estate only starts to bring profit after three to five years’ investment.
Concluding the analysis above, the VND is hoped to take over the first position in the ranking of investment channels this year.
HNM
Vietnamese
