SBV rolls out measures to reign in raising exchange rate
Measures have been taken by the State Bank of Vietnam to reign in the rising US dollars against the VND.
According to an SBV report, the exchange rate for the greenback broke the VND24,000 mark on September 11 and reached its highest level at VND24,076 on Monday.
On the black market, the US$ exchange rate on Monday was trading at around VND24,320 - 24,400, an increase of about VND170 compared to the previous week.
Commercial banks reported a US$ exchange rate of VND24,500-24,600 earlier this month, a 3.3% increase year-to-year compared to the same period last year.
The VND is facing significant pressure as the DXY index (a measure of the strength of the US dollar against a basket of six major currencies) has risen for the 10th consecutive week, marking the longest upward trend in recent years.
Economists and experts said actions taken by the US Federal Reserve (Fed) including raising interest rates and US government bond yields are contributing factors to a rising DXY index, which has reached 106 points, the highest level in the last six months.
MB Securities (MBS) said in a report if the Fed was to continue raising interest rates by another 0.25 percentage points in November, the exchange rate could reach as high as VND24,300 - 24,500 in the final months of 2023.
In addition, SBV's recent loosening of monetary policy, in contrast to the tightening in the US, has put extra pressure on the US$-VND exchange rate. This is, however, not unique to Vietnam as China and Japan, two major Asian economies, have also been loosening their purse strings.
In contrast to the Fed's recent interest hikes, the SBV has slashed interest rates four times since May last year.
However, experts said the SBV had ample time to prepare before making its moves and the risk was considerably lower this year. Factors that support the central bank's moves included Vietnam's high trade surplus, inflow of FDI and remittances, which all contribute to the country's foreign currency supply.
Tran Ngoc Bau, CEO of WiGroup, a financial market research company, said the rise of the greenback was within the SBV's anticipation, and that the possibility of a sharp increase at the end of 2023 remained minimal.
Dr Can Van Luc, a member of the National Advisory Council for Monetary Policies said even if another round of interest increase was to take place in November, as announced by the Fed, fluctuation would likely be insignificant as the market would have had enough time to prepare.
However, a rising exchange rate will still produce negative effects including higher costs for production and imported consumer goods, especially for private businesses.
Nguyen Viet Hung, a financial officer at the Dong Anh Mechanical Corporation said a fluctuating exchange rate would likely hurt import-independent businesses.
Textile, leather, footwear and fruit businesses have been struggling with fluctuating exchange rates since the beginning of the year as the higher exchange rate has pushed up costs for importing machinery, equipment, and raw materials, significantly reducing the profits.
Governor of the State Bank of Vietnam Nguyen Thi Hong, said maintaining the US$-VND exchange rate would likely remain a challenging task.
She said it was important to look at the bigger picture while managing the exchange rate.
"A higher exchange rate benefits export-oriented businesses, but domestic production relies heavily on imports, with the import/GDP ratio close to 100%. So, when the exchange rate rises, importing businesses face difficulties," she said.
Her deputy Dao Minh Tu said the central bank must find a balance between interest rates and exchange rates.
The Southeast Asian economy's trade surplus, estimated at US$20.1 billion in the first eight months of the year, as well as a record 24% increase in FDI inflow are to serve as much-needed buffers for the remaining months of 2023.
The SBV has also been making its own moves to address the rising exchange rate including the recent issuance of treasury bills, which has net absorbed nearly VND30 trillion from the banking system.
Economist Dinh Trong Thinh said SBV's key objective is to absorb excess money from the market, which has been produced by the government's economic stimuli including increasing public spending and slashing VAT and interest rates post-COVID-19.
