Inflation Rate And Interest Rate Vietnam And Thailand

[cigar7]

It looks like inflation is about 25% in Vietnam now and the interest rate has just been raised to only 14% on June 11. That leaves a massive negative gap, and encourages even more borrowing to buy cheaper today than in the future. It provides no reason to save money because your money will buy less in the future. The official exchange rate is now 16,461 dong to a US$ but the unofficial rate is 18,500 at the jewelry stores/gold shops. Traders are expecting 22,500 a year from now. The Dong could go into free fall in 2008.

I highly recommend you get rid of all Dong now!

In Thailand, inflation is now 7.6%, and it seems it is starting to follow Vietnam. The savings rate compared to the inflation rate is negative in Thailand too! Someone else posted that The Thai central banker is concerned about people spending all of their savings.

Are we heading for another global financial crisis caused the Asian central banks again? What is wrong with the Asian Central bankers?

[SoCal]

I highly recommend you get rid of all Dong now!

And what would you highly recommend I do with my dong?

[cloudhopper]

Well I'm keeping my dong; the more it inflates the better.

[kiwivn]

VIETNAM ISN'T SUFFERING CAPITAL FLIGHT, DEUTSCHE BANK FUND SAYS 2008-06-17 01:45 (NEWYORK)

By Jason Folkmanis

June 17 (Bloomberg) -- Devaluation forecasts for Vietnam's currency have been ``overly bearish'' as the country isn't experiencing capital flight due to concern over inflation and a widening trade deficit, a Deutsche Bank fund said.

Vietnamese inflation accelerated last month to the fastest since at least 1992 and the nation's trade gap has more than tripled from a year ago. Three credit-rating companies have cut Vietnam's rating outlook since May, and Morgan Stanley said last month the Vietnamese dong is poised to weaken in a manner similar to Thailand's baht in 1997.

Although some unnamed ``market commentators'' are betting on ``major capital flight,'' there has been no sign of a crisis of confidence in Vietnam's financial system that may lead to bank runs and cause such outflows, said Deutsche Asset Management (Asia) Ltd., which manages the DWS Vietnam Fund Ltd.

``On current evidence there are no signs of capital flight,'' said Deutsche Asset Management, a unit of Deutsche Bank AG, in a monthly note. ``The risk of massive capital flight is currently quite low.''

Higher interest rates have caused Vietnamese to move money into the banking system, Deutsche Asset Management said. The State Bank of Vietnam has increased its benchmark interest rate twice in the last month.

Despite a decline in Vietnamese stocks this year, foreign investors have been net buyers of local shares and long-term foreign direct investment in the country is strong, according to Deutsche Asset Management.

Location and Population

Even as Vietnam is battling ``worrisome economic issues that have resulted from heady growth,'' the country is still ``a vibrant, well-located, well-populated and attractive market,'' the U.K.-listed fund Vietnam Holding Ltd. told investors in a note released yesterday.

Higher interest rates in Vietnam have ``helped raise support for monetary policy,'' according to Vietnam Holding, which argued that any future policy-driven currency depreciation should be accompanied by a reduction in government spending.

The dong has strengthened to 16,614 per dollar today from 16,624 on June 11, when the State Bank of Vietnam set a daily reference rate for the currency that was 2 percent lower than the previous day. The central bank allows the dong to trade up to 1 percent on either side of the daily reference rate.

``We are not seeing the massive sell-off of dong that would lead to a serious devaluation scenario,'' Deutsche Asset Management said. ``The market's fear of a massive devaluation is overly bearish, and in the medium- to long-term the currency will trade in a very narrow band against the dollar.''

Any possible steep dong decline is made less likely by Vietnamese foreign-currency reserves that total about $26 billion, according to the fund manager.

``The Vietnamese dong is a controlled currency,'' Deutsche Asset Management said. ``The authorities have enough reserves to intervene in the market to support their policies.''

For related news:

On banking: STNI BNKLOSSES <GO>

On inflation: STNI STAGFLATION <GO>

--Editors: Michael Dwyer, Stephanie Phang

To contact the reporter on this story:

Jason Folkmanis in Ho Chi Minh City at +84-91-205-3237 or [email protected]

To contact the editor responsible for this story:

Tony Jordan at +65-6212-1150 or [email protected].

[SoCal]

I am actually going to buy some dong. Not much, just a few thousand dollars worth.

Gold shops now buying dollars at +19,000.

The dong rate is set by the government, and I don't think it will ever reach this level, nor do I think it will drasticaly change in the black market.

Just my thought, and yours?

[samran]

Just my thought, and yours?

Thats what people thought in 1997.

Basic economics is that if your country has massive inflation, you let your currency devalue. If not, others will do it for you.

[Misty]

Just my thought, and yours?

Thats what people thought in 1997.

Basic economics is that if your country has massive inflation, you let your currency devalue. If not, others will do it for you.

Or another way to look at it is if you have massive inflation, your currency is already devaluing relative to currencies in economies with lower inflation rates. Theory of purchasing power parity.

Maybe the similarity between Vietnam 2008 and Thailand 1997 is in the crisis in confidence, which leads to capital flight. But the underlying dynamics were actually a bit different in that in Thailand there was no massive inflation. A fixed baht, relatively high local interest rates, inefficient financial system, semi-open financial system and an inefficient use of capital = crisis in confidence. The fixed currency & crisis in confidence made the currency ripe for attacks by hedge funds. Those attacks became the proverbial straw, but the overall setting for the baht's fall had to do with problems in the structure of Thailand's financial system.

[glyph]

"In Thailand, inflation is now 7.6%, and it seems it is starting to follow Vietnam."

The cause of inflation between the two countries is not identical. The economies of the two countries is not identical. You believe that the rates of inflation will be the same. Sorry, I'm not following you. Saudia Arabia has the world's largest known reserves of oil. For the past decade, it has has an inflation rate of nearly zero. During the past year, it has had an inflation rate of 10%. Perhaps you think that the Saudi Arabian economy is following Viet Nam, or is it the other way around?

[cclub75]

The dong rate is set by the government, and I don't think it will ever reach this level, nor do I think it will drasticaly change in the black market.

Exactly... like in Burma. The Kyat value is also set by the government... but nobody cares.

I mean : I don't want to compare VN with Burma of course. But to argue that the "rate is set by the gvt therefore it's fine"... can be a little bit short I think. And dangerous.

Even China, that had all the munitions to "set the rate of RMB"... and it did for a long time... eventually has to change.

China, VN... countries that are doing a lot of exports/imports can't live long time with a "virtual", "dual" or whatever rates for their own currencies.

[SoCal]

Vietnam’s economy ‘not in a crisis,’ says ANZ

A new urban area in Ho Chi Minh City. Predictions of economic downturn in Vietnam is not as bad as believed, an ANZ executive says.

Australia & New Zealand Banking Group Ltd. (ANZ) said Vietnam’s economy isn’t facing a crisis, with cash still flowing easily through the country’s banking system and inflation likely to slow.

Morgan Stanley last month said the Vietnamese dong was heading for a “currency crisis,” citing a widening current-account deficit, and warned of the risk of a “systemic banking crisis.’’

Calyon, Credit Agricole SA’s investment banking unit, said this month that the exchange rate for dong non-deliverable forwards points to a possible balance of payments crisis in Vietnam.

Citigroup Inc. said in a report this month that the risk of a banking crisis is the primary problem facing Vietnam.

“It’s very interesting to see international commentators, when there is a problem, using the word ‘crisis’,’’ Alex

Thursby, Asian-Pacific managing director for ANZ, told reporters Wednesday in Ho Chi Minh City, without citing anyone by name.

“I don’t think there’s a crisis,” Thursby said.

“There’s a requirement to bring inflation down and a focus on that, but the Vietnamese economy has many strengths, between domestic demand and continuing investment by organizations that want to export.’’

Vietnam’s inflation rate accelerated to 25.2 percent in May, the fastest since at least 1992.

Exports rose 27 percent through May, according to preliminary figures from the General Statistics Office in Hanoi.

‘Reasonable shape’

Vietnam’s economy “is in reasonably good shape,” buoyed by recent interest-rate increases by the country’s central bank as a measure to control inflation and by “strong’’ foreign-exchange reserves, Thursby said.

Dong and dollar liquidity in the banking system remains “strong.”

“There may be pockets which are not quite as strong as other pockets, but generally the system is still relatively liquid and that all bodes very well for the future,’’ he said.

“I don’t get a feeling this is as bad as some people would like to suggest.’’

While a “herd mentality’’ has led to a loss of confidence in the dong among some Vietnamese, the country’s banking system is stable, said Dam Bich Thuy, ANZ’s chief executive for Vietnam.

“We see some people trying to get dollars, but then they still put their dollars back into the banks,’’ Thuy said.

“They don’t take money out and put it under the mattress.’’

ANZ has a 10 percent stake in Saigon Thuong Tin Commercial Joint-Stock Bank and a 12 percent stake in Saigon Securities Inc., and wants to further expand its branch network in Vietnam, Thursby said.

The Australian lender has branches in Hanoi and HCMC and a representative office in the southern Mekong Delta city of Can Tho.

Source: Bloomberg

Story from Thanh Nien News

Published: 20 June, 2008, 17:53:11 (GMT+7)

Copyright Thanh Nien News

[Edonista]

I am actually going to buy some dong. Not much, just a few thousand dollars worth.

Gold shops now buying dollars at +19,000.

The dong rate is set by the government, and I don't think it will ever reach this level, nor do I think it will drasticaly change in the black market.

Just my thought, and yours?

I would wait for further devaluation...I have read 1 year $/dong NDF traded at 23,000 off shore.

The official rate is worthless , as no bank will allow you to purchase back your $ at that rate.

[SoCal]

Yeah, but sometimes its about living. I dont have access to my VND until 7/3 without penalty, and I am leaving SGN 6/26-7/16 for work.

There is no offshore VND rate, only 12 month forward non-deliverable contract. Vietnam may or may never see this rate.

Government says it is done devaluing the dong, some say things are not all that bad, and the wife and baby need to eat.

Just one of those realities, and getting dong for 19k/1 is not all that bad, especially considering I was getting 15,800/1 two months ago based on fear of the dollar.

[Edonista]

Of course if you need cash for living expenses you have to change your $ into dongs...my "wait" advice was for investment purposes only.However I am thinking about investing in dong bonds or bank deposits once the government admits defeat on the exchange rate. Is the passport enough to open a bank account in Vietnam or you need work permit, business visa and bullshit of the sort ? Do you know if to purchase gov bonds you need just a bank account or you can do that only by a broker ?

[SoCal]

They have relaxed the requirements on opening a VND account. They told me previously that now all you need is proof of address, but when I filled out the application they didn't ask me for any proof. No longer need work permit, residency card, etc. Foreign currency ccounts also easy, but limited to $7,000 per customs entry card, unless you declare an amount on entry.

Bonds, not sure. Imagine you need a broker.

[Edonista]

I have just been in Vietnam and can confirm that it is possible for a foreigner open a bank account in VND just showing the passport. To invest in bonds you need a brokerage account instead, and the procedure to open it takes 15 days. As the bond market is totally "grey" and illiquid I passed the chance...besides the exchange rate went back to 16500 so I don't think investing in dong now is a bargain.