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Wider foreign currency trading band still "ineffective"   2009-03-27 - SGTT

The decision by the State Bank of Vietnam on widening the foreign currency trading band to +/-5%, which is understood as paving the way for the VND’s depreciation, has not led to import prices increasing yet, mainly due to low demand.


Prices increase, but because of supply-demand basis


The retail fertiliser price began increasing last week, before the State Bank released the decision on widening the trading band. In the Cuu Long River Delta, farmers complain that the urea prices have increased by VND1,500/kg in comparison with the beginning of the year, to VND6,500-6,800/kg. Similarly, kali has also surged by VND1,500-2,000/kg to VND12,500-13,000/kg, and NPK prices from VND8,500-9,000/kg to VND9,500-10,000/kg.


However, analysts say that the price increases should be attributed to market supply and demand rather than foreign exchange rate changes.


The animal feed prices should have increased because of the higher imported material prices in the world. However, domestic producers have not raised sale prices because they are still making finished products from materials they imported before at lower prices, according to Le Ba Lich, Chairman of Vietnam Animal Feed. Lich said that the price of soybean oil cake imported from India and Argentina has increased from $370/tonne to $410-430/tonne.


He went on to say that domestic producers will have to import materials in April and May at high prices, and bear exchange rate fluctuations. Therefore, it is expected that the feed price will increase by 5-7%. Companies that import veterinary medicine have also forecast that the prices of products may rise by 3%. However, price increases will still depend on demand.


Local newspaper Saigon tiep thi has reported that home appliances are still selling at the same prices. Ngo Quang Vinh from Ideas supermart system said that despite the decision to widen the trading band, the prices of all commodities being sold by the supermart chain remain unchanged, as it is selling products imported before at old prices.


“Retailers would have difficulty selling products at this moment with increased prices,” Vinh said.


How about April?


Meanwhile, Dinh Anh Huan, Business Director of The gioi di dong, one of the biggest mobile phone retailers, said that it would take 15-30 more days to see what effects the decision on the wider trading band would have since distributors are still selling products imported before.


Saigon tiep thi newspaper has cited its own sources as saying that producers and importers are planning to raise prices by 3-5%. However, price increases are common when new products are launched.

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