Central bank refutes currency band rumours, claims within range

In a statement released on May 24, Pham Chi Quang, head of the Monetary Policy Department of the central bank, stated that the foreign exchange market has been under mounting pressure from unpredictable fluctuations occurring in the global financial market, along with challenges and difficulties faced in the domestic market since the beginning of the year.

High inflation in the United States, the US Federal Reserve’s decision to delay interest rate cuts and increasing geopolitical tensions in some territories have fueled the appreciation of the US dollar globally, thereby bringing to bear devaluation pressure on other currencies, including the Vietnamese dong (VND).

Locally, manufacturing is recovering strongly as businesses spent US$132.23 billion on imports since the beginning of the year till mid-May, marking an increase of US$19.7 billion, or up 17.5% compared to the same period from last year. Such a high import demand has increased businesses’ needs to buy foreign currency.

However, Quang outlined that the high import demand will create foreign exchange revenue in the future through an export boost, which in turn will help to relieve some exchange rate pressure in the near future.

Quang cited statistics indicating that the Vietnamese currency has depreciated by about 5% compared to the US dollar since the beginning of the year. This figure is similar to the devaluation of other regional currencies such as the Taiwanese dollar at -5.06%, the Thai Baht at -6.31%, the Korean Won at -5.66%; the Japanese Yen at -10.87%; the Indonesian Rupiah at -3.87%; the Philippine Peso at -4.82%; and the China Yuan at -2.04%.

He described the market challenges as short-term because the foreign currency supply will shortly improve thanks to the positive recovery being recorded in exports over the coming months.

“Recently, businesses have sharply increased their foreign currency purchases, a factor that reduces the demand for foreign currencies in the future, thereby the balance of foreign currency supply and demand is likely to improve more positively in the future,” explained Quang.

He quoted foreign analysts as saying that it is likely the Fed will cut interest rates by the end of the year, thereby reducing devaluation pressure on world currencies, including the VND. Therefore, many international organisations predict the possibility of the VND increasing in value again when those basic factors are gradually realised in the near future.

To stabilise the foreign exchange market and ease pressure on exchange rates, the State Bank has issued bills with appropriate terms and volumes to regulate the excess amount of the VND and to limit the factors increasing pressure on the exchange rate. In addition, since April 19 the State Bank has sold foreign currency to intervene to support market liquidity.

“The State Bank will manage the exchange rate flexibly, in accordance with market developments by continuing to synchronously combine monetary policy tools with the sale of foreign currency to intervene to support market liquidity. This serves the economy’s legitimate foreign currency needs, contributing to maintaining the market psychologically, stabilizing the macroeconomy and controlling inflation,” said the official.