Rising USD prices erode profits
Exchange with
Reporter Tien Phong
, Mr. Mai Huu Lam – General Director of Cat Van Loi Industrial Electrical Equipment Manufacturing Joint Stock Company – said that the business’s profit margin is only 5-6%, exchange rate fluctuations from the beginning of the year can erode all these profits. “Input material prices increased by 25%; Prices of copper, aluminum, steel, and oil all increased, combined with exchange rates, businesses were bored looking at prices and did not want to do anything. It’s a loss,” Mr. Lam lamented.
Meanwhile, with economic difficulties, businesses have to lower finished product prices to compete. The more you work, the more you lose, but businesses cannot stop because they still have to maintain employees and teams in the company. In addition to steel, all materials used by Cat Van Loi depend entirely on imports.
Exchange rates remained high after the State Bank intervened. Photo: Nhu Y.
According to Mr. Lam, at this time, the production and business situation is even more difficult than when the COVID-19 epidemic occurred. “The epidemic makes it difficult to travel and disrupt transportation, but raw material prices are not as tense as they are now. Meanwhile, the current context is affected by geopolitical tensions, with input commodity prices increasing sharply. At the time of signing the contract and implementing the contract, there was a big difference in the price of raw materials,” Mr. Lam said, giving for example, with a previously signed project that will be implemented until 2026, it is not known whether the exchange rate will increase to this level. how much.
“If the USD price goes up to 27,000 VND/USD, businesses will lose 10% of their costs, plus inflation, salary increases for workers from July 2024… will fall heavily on us,” Mr. Lam worried.
To prevent exchange rate risks, Mr. Lam’s business sometimes uses tools such as forward foreign currency trading.
With the aviation industry, there are many types of costs such as parking fees and airport runway rental fees; Aircraft rental fees, fuel purchases, pilot salaries… are all calculated in USD. At the conference to deploy the task of managing monetary policy in 2024, Mr. Dang Ngoc Hoa, Chairman of the Board of Directors of Vietnam Airlines Corporation (Vietnam Airlines), for every 1% change in exchange rate, the airline will lose money. 300 billion VND. If there is a 5% change, the cost per year increases to 1,500 billion VND. Vietnam Airlines wants the exchange rate to be stable, at the lowest possible level.
A representative of the State Bank said that it will closely follow actual developments to both control inflation and balance the target of reducing interest rates of the Government and the Prime Minister. At the same time, the bank manages exchange rates in accordance with market conditions, synchronously coordinates monetary policy measures and tools to stabilize the foreign exchange and foreign exchange markets, contributing to inflation control and stability. macroeconomic determination.
Mr. Le Manh Hung – Chairman of the Board of Members of Vietnam Oil and Gas Group (PVN) – also said that exchange rate fluctuations and risks greatly affect the group’s production and business activities, especially in risk management according to exchange rate fluctuations. PVN currently has outstanding foreign currency loans of 38,000 billion VND, equivalent to about 1.55 billion USD.
Pressure from strong USD
At 9:00 a.m. on April 24, the State Bank announced the central exchange rate at 24,274 VND, down 1 VND compared to the previous day. This is the first time in the past 2 weeks that the State Bank has adjusted the central exchange rate to decrease. The USD spot selling price was maintained at 25,450 VND/USD by the State Department of Foreign Exchange Reserve Management.
With a margin of +/-5%, the floor and ceiling exchange rates applied to commercial banks on April 24 are 23,061-25,487 VND/USD. Accordingly, USD prices at banks simultaneously decreased by 1 VND to meet the regulatory ceiling requirements. Specifically at Vietcombank, the USD price is currently listed at 25,177-25,487 VND buying – selling. BIDV and VietinBank apply 25,187-25,487 VND/USD and 25,180-25,487 VND/USD respectively.
Before that, the central exchange rate had continuously increased sharply, especially from April 15 onwards, which was also the day the USD price skyrocketed to the ceiling. Specifically, from April 15 to April 23, the central exchange rate increased by 192 VND. At the same time, the selling price of USD at banks also increased from 25,180 VND to 25,488 VND/USD. On the free market, the price of 1 USD is around 25,750 – 25,850 VND buying – selling.
The reason the exchange rate has increased recently, at the press conference of the State Bank on April 19, Mr. Pham Chi Quang, Director of the Monetary Policy Department, shared that the USD index (DXY) increased very rapidly in the past year. The first 3 months of the year with an increase of more than 5% has put great pressure on the domestic currencies of many countries, including Vietnam. In addition, high import demand, especially from petroleum and iron and steel businesses, along with many businesses increasing foreign currency purchases, has contributed to a sharp increase in exchange rates. In addition, the policy of reducing domestic interest rates aims to promote economic growth in the context of countries around the world still raising interest rates, causing VND interest rates to be negative compared to USD interest rates in the interbank market, as well as put pressure on exchange rates.
Notably, after the management agency’s announcement about selling USD to intervene in the market from April 19, the exchange rate has not cooled down yet. Specifically, the State Bank of Vietnam announced its readiness to sell USD to the market at the spot exchange rate for banks with negative foreign currency positions to convert their foreign currency positions to zero, with the selling price at an intervention price of 25,450 VND/USD. .
Financial expert Nguyen Duc Hung Linh said that the exchange rate has not cooled down yet, possibly because at the present time, market members are still observing the market. USD holders still expect to be able to sell at higher prices, so they have not promoted selling USD. The exchange rate offered by the State Bank is 25,450 VND/USD, which is currently lower than the exchange rate at commercial banks of 25,487 VND/USD. “Selling foreign currency in the direction of sending signals and surveying market reactions is necessary to avoid loss of foreign exchange reserves. To evaluate the effectiveness of foreign currency sales from management agencies, we need to monitor more in the next few weeks,” Mr. Hung Linh said.
Banking and finance expert Nguyen Tri Hieu said that the exchange rate will continue to increase from now until the end of the year due to the strengthening of the USD; Geopolitical tensions in the Middle East region cause investors and markets to look to the USD as a “haven channel”. In the domestic market, investment channels have not prospered, such as stocks fluctuating strongly, the gold market is still “hot”, deposit interest rates remain at the bottom… causing the economy to not be strongly revived to help VND strengthen.
Mr. Hieu said that a sustainable solution for the exchange rate must be a stable economy and strong recovery. Increased confidence in VND will help the local currency recover.
