New exchange rate not affecting inflation control

Director of the SBV's Monetary Policy Department Nguyen Thi Hong said in the context of a stable monetary market with inflation in check, the rate adjustment is expected to stimulate exports, which grew at a robust 15.4% in the first five months of the year.

In the reviewed period, Vietnam enjoyed an export surplus of US$1.6 billion while the international balance of payments saw a record surplus of more than US$10 billion, raising the central bank’s foreign reserves to a record high of US$35 billion.

Hong added that as inflation remains low, as evidenced by the May consumer price index (CPI) rise of only 1.08% over late 2013, the new rate should have minimal, if any, impact on the inflation control target set by the Government.

The bank’s monetary policy has so far this year helped stabilise the macro-economy and contain inflation at a low level. The national CPI in May inched up just 0.2% compared to April and a modest 4.72% over the same period last year.

The ceiling interest rate is now lower than it was in late 2013 while supply and demand of foreign currencies are ensured.

According to Hong, the adjustment does not come as a surprise to anyone as the SBV announced its directions for the monetary policy and banking activities, including the forex rate adjustment.

Businesses and credit institutions have had ample opportunity to modify their operational plans to accommodate the adjustment as required.

The forex exchange rate adjustment will more likely than not spur exports in the remaining months of this year to support economic expansion, she said.

She revealed the central bank will keep a close watch on the forex market and introduce a series of measures to stabilise it in line with the new ceiling level.

In the remaining months of this year, the SBV will continue to actively pursue a flexible monetary policy to control inflation within the set target’s level, stabilise macro-economy, support economic growth and ensure safe operations of credit organisations, Hong said.

According to financial analysts’ at the Hong Kong and Shanghai Banking Corporation (HSBC), the adjustment is inconsequential, and should not have much effect on businesses and commercial banks nor have any devaluating effects on the Vietnam Dong.

The Vietnam Dong is well supported by improved exports and low import growth, they say.

In addition, foreign direct investment (FDI) in Vietnam has begun to increase to US$1 billion a month on average, helping the central bank to continue to raise its reserves.