Factors affecting exchange rate in Viet Nam

Out line

Current exchange rate movement

Key features Apply Pegged float USD is dominated foreign currency 9/2/2011, devalue VND 9.04% against USD, lead to appreciation of other currencies

9-12/2/2011 SBV changed exchange rate VND/USD 2 times

-13/3/2011: after combo disasters, JPY appreciates (258-270VND/JPY)

3 main factors impacting exchange rate

Inflation
- Vietnam evidence high inflation relative to US - Example: VN vs US
14.00 12.00 10.00

8.00
6.00 4.00 2.00 0.00 1 2 3 4 5 6 US 7 VN 8 9 10 11 12 1 2

Inflation(Cont)
Current inflation (compared to perivous month) -January: 1.74 % -February: 2.09% -March: 2.17 % highest over 34-month period and for the first time .CPI increase in March is higher than the increase in February CPI -Inflation in 2011 is expected to be 12.08 % by Reuter, but seems to be higher => VND is expected to depreciate

Government control
- Stabilize macro economic such as: inflation, unemployment, GDP + tightening activities of black market. + 9/2/2011 depreciating VND against to foreign currencies. + banning on importing gold to reduce trade deficit + banning on black market seems inefficient

Expectations
- people expect high inflation, they want to store their wealth in foreign currencies, gold, real estate. - recently, gold and real estate market is more regulated and have more potential risks. - Import is expected to 14 bil in the first quarter - trade deficit (over 4 billion dollars in 2010), international reserve decreases to over 10 billion dollars. => High demand for foreign currencies

Recommendations
- Reducing government deficit - Reducing trade deficit: reducing raw material export and import - Stabilizing consumers market. - Privatizing inefficient state own enterprise - Stabilizing macro economic, sustainable growth