Forex market to end chaos

December 05, 2010 | 23:17
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The forex market is set to leave turbulence behind it with mass inflows of hard currencies towards the year’s end.


That was the bold message from the State Bank head, delivered at last week’s Vietnam Business Forum, to discourage greenback speculation on the “black market”.

On December 1, the local currency’s exchange rate with the US dollar climbed to a record VND21,600 per dollar. However, following the State Bank governor Nguyen Van Giau’s confirmation that the dollar supplies would increase towards the year’s end, the exchange rate settled at VND21,450 per dollar by the end of last week.

Giau said foreign portfolio investment would also draw in $712 million.

“This is a huge improvement against $500-600 million net outflows of 2009. Moreover, the foreign portfolio money into Vietnam surged since October. I think this trend will remain in December,” said Giau.

It should be noted that foreign portfolio investment is an important force driving the forex market. In 2007, as foreign money en masse flooded Vietnam’s capital market the economy was in a huge greenback surplus, leading to continuous appreciation pressures to the  dong.

Meanwhile, international financial experts have long predicted massive funds heading into emerging markets, like Vietnam. According to research firm EPFR’s data, capital inflows into emerging market funds in October were the second highest on record at $20.2 billion.

On other fronts, Giau also predicted a rosy picture for overseas remittances at $7.3 billion versus $6.4 billion in 2009. Remittances traditionally surge during the year’s end, close to the traditional Tet holiday.

Despite the monthly trade deficit widening  from $1.1 billion in October to $1.3 billion in November, the annual target of $12 billion was within reach thanks to the relatively smaller shortfall recorded mid year, said Sherman Chan, HSBC’s regional economist for ASEAN.

Also foreign direct investment disbursement reached $10 billion over the first 11 months of 2010, 9.9 per cent year-on-year increase.

The State Bank’s Ho Chi Minh City branch director Ho Huu Hanh said forex turbulences was caused by local people’s dollar speculation.

“The dollar supply in the economy is more than adequate to cover demands. People and enterprises as well are hoarding dollars in bank deposit accounts,” said Hanh.

The amount of dollars in bank accounts in the city is estimated at around $9 billion.

“The situation in 2010 is totally different from 2009. In 2009, while trade deficit widened, all inflows decreased. In 2010, the picture is much rosier with increasing inflows,” said Hanh.

The State Bank expected the balance of payments in 2010 to stand at a $4 billion deficit, much less than $8 billion in 2009.

By Thao Van

vir.com.vn

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