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US dollar depreciation shows the sign of economic downturn   2012-06-21 - SGTT

The US dollar depreciation in recent days and the low demand show an ominous sign: the enterprises’ production capacity and the consumer market are weakening.

 

The dong/dollar exchange rate quoted by commercial banks on June 19 was 20,920-20,970 dong per dollar (purchase and sale), decreasing by 10-20 dong per dollar in comparison with the prices quoted on June 18 and by 50-60 dong per dollar in comparison with the prices quoted in early June,



As such, the dollar price has decreased again since June 6, just after four days of slightly increasing.



Le Duc Tho, Deputy General Director of Vietinbank, said the dollar unexpectedly increased by 170 dong per dollar, or 0.8 percent, in early June because of the increased demand at that moment, when some foreign currency loans were due and borrowers needed dollars to pay debts. Meanwhile, there has been no big demand for dollar in the long term, which explains why the dollar price has fallen down again.



Also according to Tho, the current dong and the dollar interest rates have been kept in the harmonization to ensure that it would be more profitable to deposit dong than dollars.



Dollar depositors can get the interest rate of 2 percent per annum. Supposed that the price slippage in 2012 is 2-3 percent, one would see that it is more profitable to deposit dong to enjoy the interest rate of 9 percent per annum, than depositing dollars.



In case the dong deposit interest rates would decline further, the dollar interest rate would also be lowered in order to be sure that dong keepers always have advantages over dollar.



Eximbank’s General Director Truong Van Phuoc explained that the dong and dollar credit growth has been slowing down due to the production stagnation, and once the demand for dollar loans decreases, the dollar prices would decrease as well.



However, observers still can point out some unusual things in the dong/dollar exchange rate performance. In May, the dollar appreciated significantly in the first four days of the month, partially because of the sharp decreases of the dong deposit interest rates.



In principle, when the dong deposit interest rates decrease, people would buy dollars instead of keeping dong, because the dong deposits cannot bring the profits high enough. Therefore, the dollar price would increase.



Meanwhile, currently, the dollar has been depreciating continuously in the context of the dong deposit downward, which should be seen as an abnormal thing?



Answering the question, Le Xuan Nghia, a well-known economist, said businesses are still facing a lot of difficulties. Since their export markets have been narrowed, they have decreased the imports of materials, which has led to the weak dollar demand.



The low dollar demand has had bigger influences on the dollar market than the high demand for financial speculation, which has resulted in the downward trend of the dollar price.



Besides, Nghia said, maybe the State Bank has stopped or reduced the dollar purchases, which has led to the dollar price decrease.



In general, Nghia said, the foreign currency market performance shows the picture of Vietnam’s economy, where the enterprises’ production capacity and consumer market both are weakening. The dollar price in the black market were sometimes higher than the official exchange rates quoted by banks, which shows that the imports, especially the imports across the border gate, have decreased due to the low domestic demand.



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