SBV expects stable forex
The forex market has begun to stabilize as the central bank has, once again, pledged that it would not devalue the dong any further for the rest of the year.
“We have adjusted the USD/VND exchange rate quite enough, and there is no other reason to continue devaluing the dong,” stated State Bank (SBV) Governor Nguyen Van Binh, in response to forex volatility in the market, during a government meeting on macro-economics last week.
Binh stressed that the SBV would not devalue the dong for the remainder of the year, explaining that the volatility in the forex market in past weeks could be attributed solely to psychological factors, and that the monetary policy would introduce measures to stabilize the forex rate when needed.
He has also met with leaders of commercial banks in Hanoi, urging them not to stockpile their dollar, but to sell the greenbacks to businesses according to demand.
Binh assured them that the SBV was ready to pump dollars into the forex market should it prove necessary.
According to ACB deputy general director Nguyen Thanh Toai, the pressure from the devaluation of the Chinese yuan and its unpredictable movements caused banks to worry over any further appreciation of the dollar. As such, banks increased their dollar purchases and limited sales.
Following the SBV’s statement, the USD/VND exchange rate started to dip. The selling price was recorded at between VND22,510-22,520 per dollar, while the buying price stood at VND22,450 per dollar at the close of the market on August 26.
“Dollar was trading at VND20-40 lower than the ceiling price, and the forex market has started to cool down after previous volatility,” said Can Van Luc, BIDV acting deputy general director.
According to Luc, the SBV’s u-turn on their decision to devalue the dong a further 1% and widen the trading band to 3% in less than a week, was a rather “brave decision”, and appropriate in the sense that the monetary authority had responded in a timely fashion to external factors, which in this case was the yuan’s devaluation.
“Additionally, as the Federal Reserve (FED) may lift its interest rate either in September or December, the SBV’s fiscal policy is thus one step ahead to leverage such an interest rate hike,” Luc added.
“Over the past five years, dong has been devalued some 15%, while on average, regional currencies have declined some 17-18% over the same period. Vietnam’s devaluation, as such, is still below the average,” he noted, adding that if China might devalue their currency even further, Vietnam could be even more flexible with regard to the forex rate.
Meanwhile, according to economist Le Xuan Nghia, even if the FED raises the interest rate, or if China boots the yuan devaluation further, there will be no impact on the SBV’s current forex rate.
“I believe that the SBV wants to keep the current forex rate until the beginning of the year and I think that they can definitely do so,” said Nghia.
Luc suggested that “monitoring the forex will be harder in the time to come, and the central bank may well have to use different tools to deal with the forex rate instead of just adjusting the forex rate alone.”