HSBC projects stability for local currency

Thursday, 04/12/2014
HSBC Bank said in its report on December 2 that Vietnam dong will likely be stable at least for the rest of the year, mainly supported by the steady flows of foreign direct investment (FDI) and a balanced trade account.

According to the Foreign Investment Agency (FIA), FDI disbursements in the January-November period rose positively by 6.2% year-on-year to some US$11.2 billion.

FDI approvals continued to fall in the first eleven months of this year but the drop slowed as several big-ticket projects, including the second phase of the Samsung Thai Nguyen hi-tech complex. In the period, foreign investors pledged a combined investment capital of US$17.33 billion, declining by 16.7% year on year.

HSBC said Vietnam has enjoyed a trade surplus of US$2 billion in the year to date.

Figures of the General Statistics Office showed Vietnam suffered a trade deficit of US$300 million in November but posted a trade surplus of US$2.06 billion in the year to November. FDI enterprises contributed over US$15.5 billion of the total number while domestic firms incurred a trade deficit of nearly US$13.8 billion.

Rising import demand in the short term as it did last month would put pressure on the local currency, the bank forecast. It said the strong increase in import demand as well as profit-taking activities of foreign investors used to cause the local currency to fall against the U.S. dollar and moved towards the highest level allowed by the State Bank of Vietnam (SBV).

“November and December are months when trade typically rises. This year, the increase is even more rapid (as shown by the comparison with the previous year) due to rising competitiveness of Vietnamese goods,” the bank said.

Both imports and exports tend to flare strongly given higher demand in the fourth quarter in most years and increasing production before the Lunar New Year holiday, better known as Tet in Vietnam.

One more reason for the bank to project stability for Vietnam dong is that SBV’s Governor Nguyen Van Binh confirmed that the reference rate of the local currency will not be changed for the rest of the year in response to the appreciation of the U.S. dollar in recent weeks.

The bank’s data showed after the central bank devalued the local currency by 1% in June this year, the exchange rate between the local currency and the greenback moved below the allowable ceiling level of VND21,458 for most of the year. 

“We believe that other than the occasional stress points, the Vietnam dong will likely be stable thanks to the steady flows of sticky capital (FDI) and a balance trade account,” the bank said.

As for improvements of the domestic market, the bank expected demand to gradually pick up on the back of an improving economy and increasing purchasing power. The sharp fall in oil prices will drag down the country’s fiscal deficit but help producers lower costs and pass on the saving to consumers.

“Vietnamese manufacturers and consumers will gain from the drop,” the bank said and forecast that private consumption in Vietnam to jump to 5.6% next year from 5.4% this year.

 The bank believed Vietnam’s economy will accelerate in 2015, a year when the Government targets a GDP growth rate of 6.2%.

Theo Saigon Times

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