A bank teller counts the dollar at a transaction office in Hanoi (Photo: VNA)

The exchange rate between the Vietnamese dong and the US dollar at banks has recently increased sharply. On April 3, the dollar price surpassed the 25,000 VND threshold. Vietcombank listed the dollar at 24,750 VND for buying and 25,120 VND for selling. The rates at VietinBank and BIDV were VND24,720 and 25,140 VND, and 24,815 VND and 25,125 VND, respectively.

According to Dao Phan Long, a representative of the Vietnam Association of Mechanical Industries (VAMI), enterprises which have to import raw materials for production or have dollar-denominated loans are very worried as their input costs will increase significantly.

Nguyen Van Doan, deputy director of SKD Vietnam Precision Mechanical Company, said though the exchange rate increase was predicted, it certainly had an impact on enterprises. Despite being a small-sized company with a modest import value, his company had to spend an additional hundreds of millions of dong for importing raw materials to date this year due to the rate hike. The rise was really a big concern for large-sized companies that have to spend thousands of billions dong on importing raw materials.

If the exchange rate fluctuations are not controlled and continue to increase sharply in the middle and end of the year, enterprises will face even more difficulties as their demand for imported raw materials and accessories to serve for production always increase then, according to Doan. The surge will reduce enterprises’ profits.

According to Than Duc Viet, general director of the Garment No.10 Corporation, continuous and sharp exchange rate increase has caused his corporation, whose textile and garment products are exported to more than 10 markets around the world, to face difficulties in production and business.

Viet explained that although an increase in the USD/VND exchange rate could help garment producers increase export value, they also had to spend much more money to import equipment, machinery and raw materials.

Besides, in the context that consumer demand had not really recovered strongly, the increase in exchange rates also caused goods sold in the European and American markets to have higher prices, which led to lower consumption, Viet said.

Finance expert Dr. Can Van Luc attributed the exchange rate increase to the reason that the beginning of the year was the time when some FDI enterprises repatriated profits to their home countries. This was a seasonal factor and had the effect of increasing the demand for dollar trading.

Besides, the exchange rate increase was also due to a rise in speculation when the exchange rate fluctuates, Luc said.

Experts admit the exchange rate is being flexibly managed and kept stable by the State Bank of Vietnam. The devaluation rate of the dong against the dollar is still lower than that of other countries. The VND/USD exchange rate has so far this year increased by only 2.6%.

However, the experts note, if the dollar continues to strengthen compared to the dong, it may create the risk of import inflation. They explained most of Việt Nam's exports currently have high import value content. At the same time, many products which are consumed in the domestic market also have to import raw materials for production from abroad. This will reduce profits of enterprises in the long run.

However, according to Lực, the recent increase in exchange rates is not too worrying, because the appreciation of the dollar will slow, or even decrease, when the US Federal Reserve (Fed) cuts interest rates and the US economy begins to be affected by the impact of high interest rates.

The SBV has said it will continue to closely monitor the market situation to manage exchange rates flexibly and appropriately. It will be also ready to intervene in the market when necessary to stabilise the foreign exchange market, contributing to inflation control and macroeconomic stability./.