Banks rates higher than free market as dollar shortage bites

Local banks sold dollars from VND23,420-23,460 on Thursday, 0.4 percent higher than at Hanoi local currency exchange points at around VND23,370.

Pham Hong Hai, CEO of HSBC Vietnam, said the reason for the difference is that local banks have sold too much of their dollars to the State Bank of Vietnam (SBV), leading to lower supply.

"Many banks have been expecting that rising foreign institutional investment will allow them to purchase dollars at a lower rate. However, they have sold their greenback to the central bank before these investments come, resulting a dollar shortage."

He added that many banks have been buying more dollars to deal with the problem.

Stock brokerage Bao Viet Securities (BVSC) confirmed the cause in a recent report. It said that as of April 18, the SBV has bought $8.35 billion to ensure foreign exchange reserves.

"This large foreign currency purchase has caused some pressure on the USD/VND exchange rate."

Economist Vo Tri Thanh the dong depreciation in recent weeks could only be temporary, and forecast that the it would fall only by 2 percent to the dollar this year, a figure which authorities have allowed in previous years.

Echoing Thanh, HSBC CEO Hai said that the exchange rate will remain stable unless the U.S.-China trade war escalates.

BVSC added: "The SBV will continue slightly depreciate the dong to create room for sudden changes in the global market."

On Thursday morning, the SBV once again raised the reference price for $1 to VND23,051, up 0.25 percent from a month ago.

The Vietnamese currency has lost almost 1 percent to the dollar since the beginning of this year.