VND devaluates 0.8%: Citibank

Citibank experts say in a newly released report that the local currency has lost 0.8% in value since July 2007, and that the VND is at risk of further devaluating in the time to come.

Citibank on August 29 released a report about Asia’s economy, which mentions the key problems of Vietnam at this moment: inflation, monetary policy and external risks.

The report says that there are no signs of inflation decreasing due to the price increases of food and construction materials. The government has decided to lower import taxes on several kinds of products, but it will still take time to confirm the impacts of the decision on retail prices.

Citibank says it’s a possibility that the inflation rate will be lower than the GDP growth rate, which is estimated to reach 8% in 2007. However, this will happen only if crude oil can be stabilised and Vietnam continues tightening its monetary policy, and controlling the prices of key products.

Regarding the value of the local currency, Citibank says that the local currency has devaluated by 0.8% since the end of July. The demand of enterprises and importers for dollars has increased. The wider gap in the purchasing and selling prices between the VND and the greenback also shows less demand for VND compared to the greenback.

Regarding external risks, Citibank says that the trade gap doubled between January and July 2007 due to the sharp increases of imports.

Despite the big difficulties caused by the high inflation rate and the external risks, Citibank’s experts give the optimistic conclusion that Vietnam’s national economy will be firm enough to deal with the difficulties. Industrial value in July increased by 18.7% over the same period last year, while retail turnover increased by 23.1%, and foreign direct investment by 49.8%.

The increased demand on the domestic market will make up for the trade gap. Moreover, one of the factors that lead the experts to give the optimistic conclusion is the successful reelection of Prime Minister Nguyen Tan Dung. The new cabinet which comprises young and intellectual members is expected to actively impact the national economy.

Citibank’s experts also discuss some risks for Vietnam, including a food shortage and further price increases due to animal epidemics, as well as the further devaluation of the local currency.

Source: VNE