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Weaker dong shakes up markets

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1 Weaker dong shakes up markets Empty Weaker dong shakes up markets Mon Aug 23, 2010 7:14 am

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Weaker dong shakes up markets

Posted by VBN on Aug 23rd, 2010 and filed under Banking-Finance, Stock. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry

Most traders and producers are keeping a watchful eye for any new developments on the forex market before deciding whether to increase prices of commodities following last week’s 2 per cent depreciation of the Vietnamese dong.

The State Bank of Viet Nam on August 17 decided to increase the inter-bank exchange rate between the Vietnamese dong and the US dollar to VND18,932 from the VND18,544 that had been kept unchanged since February. This means a depreciation of the local currency by almost 2.1 per cent, a move expected to contribute to reducing the trade deficit.

Giving the trading band of 3 per cent on either side of the official exchange rate, commercial banks have vied with each other to raise their US dollar prices.

Three days after the dong depreciation decision took effect, many commercial banks had the cost of the US dollar against the dong at VND19,500.

Major commercial banks such as Vietcombank, Sacombank, Eximbank, Asia Commercial Joint Stock Bank (ACB) on August 20 quoted prices of VND19,425-VND19,460 per dollar from VND19,100 on August 17.

The unofficial market reacted swiftest with rates ranging from VND19,400 – 19,500.

The depreciation has had immediate impacts on the prices of some essential goods.

On August 20, gold prices jumped sharply to VND28.78-28.82 million per tael (equivalent to 38 grams), up by about VND240,000 compared with the previous day. The hike sparked a rush to sell gold.

Gas traders including Sai Gon Petro, Vina Gas, Gia Dinh Gas and Petrolimex also decided to raise the prices of a 12-kg cylinder by between VND4,000 and 6,000. Petroleum importers were also considering a plan to adjust domestic retail prices.

Some steel companies also began raising steel prices by VND300-400 per kilo for all products over rates recorded in late June.

While traders in essential goods have already increased their prices, most small merchants and enterprises were still cautiously watching the market.

Vu Van Minh, CEO of the Giay Viet Company, a shoemaker, said any sharp movement, upwards or downwards, always had ripple effects, and they would have to keep a close eye on the market.

Manufacturers that rely on imported materials are said to be feeling the pinch most.

Trang Van Tot of Glomed Pharmaceutical Company in the Viet Nam-Singapore Industrial Park 2 (VSIP2), said that their input costs would increase, but medicine prices would not be raised due to the price control policy of the State.

The bigger concern is that the company may find it difficult to borrow dollar for imports due to forex uncertainties, he said.

Nguyen Van Hung, chairman of the Tan Phu Plastics Company, said the increase in the forex rate had distressed many plastic producers.

The cost of credit needed to import raw materials would increase dramatically with the new forex rate. This means that the companies cannot think of profits any longer, he said.

Experts said that the increase in the forex rate would increase costs for importers, and this would affect commodity prices as well as the consumer price index.

Now they would have to carefully consider their imports, even for raw materials. The habit of borrowing the greenback to import materials and maintain reserves cannot be persisted with anymore.

These changes would help the country better control its trade deficit as well as inflation in the coming months, they said.

At present, chain store operators have still kept prices unchanged due to good inventories. However, many of them, mainly retailers involved in importing goods, have said they have plans to raise prices in the coming weeks.

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