On Monday, several major commercial banks in HCM City decided to increase their forex rate in the inter-bank market to VND21,036 per dollar.—Photo tinnhanhchungkhoan

HCM CITY (Biz Hub)— The foreign exchange rate between the dong and the US dollar has risen close to the central bank imposed cap of VND21,246, a development observers blame on a greenback shortage in the market.

On Monday, several major commercial banks in HCM City decided to increase their forex rate in the inter-bank market to VND21,036 per dollar.

As of 4pm yesterday, the buying and selling prices of the US dollar at Eximbank was VND21,200 and VND21,246 respectively. Corresponding rates at Vietcombank were VND21,230 and 21,246. Compared with last week, Vietcombank's purchase and selling prices had increased by VND14 and VND26 respectively.

In the open market, selling prices continued to increase by VND50 over late last week to VND21,850.

In Ha Noi, the buying and selling prices of the greenback in the open market were VND21,740 and 21,750 per dollar, respectively.

Market analysts attributed the increase in the forex rate mainly to a shortage of dollars. In the past, when the interest rate for dong loans was very high, many commercial banks sold their dollars to buy dong for lending. Now they were having to buy the currency back, the analysts said.

As a rule, the market's dollar demand increases during the last six months of the year because many enterprises need to import large volumes of raw materials and commodities for production and trading in order to realise their yearly targets.

Another reason is that the central bank recently injected more than US$1.8 billion to import more than a million gold taels to sell at the domestic market via auctions.

Plentiful dong deposits with commercial banks encouraged them to use the domestic currency to buy dollars, and this was one more factor contributing to the greenback shortage.

Cao Sy Kiem, former governor of the central bank, said that after nearly two years of keeping the forex rate unchanged at VND20,828 per dollar the central bank has had to adjust it by 1 per cent to VND21,036.

The adjustment proved that the foreign exchange market was facing a virtual US dollar pressure, he said.

Meanwhile, central bank deputy governor Nguyen Dong Tien said that the long-term stability of the dong – dollar rate had allowed the SBV to buy about US$5 billion to increase its foreign exchange reserves.

In addition, the country's balance of payments was expected to see a surplus of $4 or 5 billion this year, Tien said.

With these figures, the central bank is quite capable of balancing supply and demand for the greenback, he added.

Rise in dollar rate

Many local importers are having difficulties in buying US dollars from banks after the central bank increased US$/VND exchange rate from VND20,828 to VND21,036 - 1 per cent.

However, some banks, especially those in HCM City, said supply and demand of dollars was normal and that banks could fully meet the needs of importers.

The adjustment in the buying price of dollars, effective from June 28, is aimed at improving the balance of payments and increasing foreign exchange reserves amid efforts by the Government to boost exports and speed up the economy, reported the State Bank of Viet Nam.

However, importers who want to pay their import bills have had to buy dollars at even higher prices than listed, reports Vnexpress online.

Under the adjustment, commercial banks are allowed to trade the currency in a one per cent band around the central bank-set rate.

Initially, commercial banks had to buy or sell the US dollar lower than VND20,826 - or not higher than VND21,246 per dollar.

A few days later, US dollars were offered at the ceiling price while some exchange bureaus offered them for nearly VND21,900 per US dollar. According to a deputy director of a furniture company in Ha Noi, before June 28 it was almost impossible to buy US dollars from commercial banks and, after the margin was loosened, it became even more difficult.

Recently, his company had to buy US dollars on the black market or accept paying a higher price at commercial banks. The director had to pay VND21,500 per US dollar from a bank.

For exporters, the situation has been positive. Pham Xuan Hong, President of Viet Nam Textile and Apparels Association, said exports made up 90 per cent of the garment and textile industry so profits would be higher - and loans easier to achieve.

An economist said that the demand for the greenback was often greater in the closing months of the year, when consumer demand for imported goods traditionally increased. — VNS