There will be no Vietnam dong depreciation in the near future as there is no US dollar shortage in the local banking system, said a senior official of the State Bank of Vietnam (SBV).

The latest pressure on the foreign exchange rate between the Vietnam dong and the US dollar is largely based on psychological factors, said the central bank’s deputy governor, Le Minh Hung, in an interview posted on the SBV’s official website.

In addition, there is the fact that local banks are more active in stocking up the greenback in an effort to partially clear their abundant sources of Vietnam dong, he added.

On June 28, the first day the new foreign exchange rate between the Vietnam dong and the US dollar came into effect, the foreign exchange market and exchange rate movements were quite stable.

However, a few days later, the exchange rate began to increase, especially in the black market. The exchange rates at the commercial banks are also listed at a high level, he said.

No dollar shortage

Through monitoring, SBV has recognized that the foreign currency balance of the economy remains normal.

In the first six months of the year, the national balance of payments developed in the country’s favor with a trade deficit of $1.4 billion, equal to 2.3 percent of export turnover, while disbursements of Foreign Direct Investment (FDI) capital stood at $5.7 billion.

Other sources, such as overseas remittances inflow and indirect foreign investment, continued to flow in at a high level, and it is expected that the overall balance of payments surplus in 2013 would be at $5 billion, Hung added.

Moreover, the foreign currency positions of the local banks and recorded transactions in the greenback are at usual rates.

Thus, we can see that the exchange rate movements in recent days are dominated by psychological factors, not from an imbalance of supply and demand of foreign currency, he said.

But SBV did not exclude the possibility that someone on the black market is trading illegally to take advantage of speculative opportunities to make illicit profits.

Regarding the question of whether the 1 percent devaluation of the dong on June 28 is the main cause for the speculative mood, Hung said that as the balance of foreign currency in the economy is currently quite normal, SBV forecast there would be no surplus demand in coming months.

According to the SBV vice chief, the national balance of payments of Vietnam in the last six months of 2013 will continue to be in a surplus.

A recent survey on foreign currency needs for the third quarter of 2013 conducted by the central bank at a number of credit institutions showed that though there is an increase in demand from customers, it is not at a significant rate, and is less likely to put pressure on the exchange rate.

The 1 percent adjustment of the forex rate on June 28 is to reflect more accurately the supply and demand relationship of foreign currency on the market, creating a solid foundation for a stable foreign exchange market in the coming time, Hung added.

On the basis of macroeconomic forecasts, as well as the orientation of monetary policy, SBV will apply a number of measures to stabilize the forex rate, including the timely sale of foreign currency for market intervention and liquidity support if necessary.

Stricter supervision

The SBV vice chief also reconfirmed that following the Government’s 01/NQ-CP Resolution, dated January 07, 2013, SBV is responsible for operating the forex  market, ensuring the value of the dong, and implementing synchronous measures to improve the national  balance of payments and foreign exchange reserves.

At the beginning of 2013, the State Bank has also confirmed the exchange rate volatility in 2013 would only be at 2-3 percent.

As a result, in the near future, the State Bank will take all necessary measures to ensure the stability of the exchange rate.

Besides, SBV will strengthen inspection and control the observance of the regulations of the central bank on foreign currency transactions at credit institutions, and direct its municipal branches nationwide to coordinate with the local authorities to implement necessary measures to strengthen the management of the foreign exchange market there.