Under pressure from global USD prices and rising demand for foreign currencies, the State Bank of Vietnam (SBV) is trying to identify a new exchange rate intervention point. The USD selling rate has been increased from VND23,700 to VND23,925. This is the fourth time the SBV has increased the price this year, totaling VND905, or 3.9 per cent.
The appreciation of the USD against the VND is generally of benefit to exporters, but will also prove disadvantageous if these businesses import raw materials, resulting in higher import costs and transportation costs, and financial difficulties if they have taken out loans in the dollar. Currency fluctuations also trigger inflation in Vietnam’s key markets, reducing purchasing power and significantly affecting export orders.
The interbank VND interest rate fell sharply during the week of August 8-12 from a large volume of bills maturing and money being pumped back into the market, resulting in the difference between VND and USD interest rates becoming negative. According to SSI Securities, the State Bank of Vietnam is implementing a relatively flexible monetary policy via open market operations in order to balance inflation, exchange rates, and interest rates.
As of the end of July, the USD/VND exchange rate had increased 2.4 per cent since the beginning of the year. Analysts believe the exchange rate has returned to stability after the State Bank of Vietnam’s strong intervention in selling about $13 billion, or 11 per cent of the country’s foreign exchange reserves. There are four factors that will help the VND resist the strong pressure from the USD.
Mr. Tran Ngoc Bau, Founder and CEO of WiGroup, told the “WeTalk - Financial Market Prospects and Opportunities” seminar that inflation is not the most serious problem for the State Bank of Vietnam (SBV) to address, it is the USD/VND exchange rate. The actions of the SBV in recent times have, in fact, always been aimed at stabilizing the exchange rate. External factors mainly relate to US monetary policy, especially the significant strengthening of the USD.
The USD/VND exchange rate quickly cooled last week after flexible regulatory moves from the State Bank of Vietnam. Interbank interest rates, meanwhile, skyrocketed over the last week. In just one and a half months, the interbank overnight lending rate has increased more than ten times and the one-week term lending rate more than five times.
Exchange rates, inflation, and interest rate hikes have been identified as the main obstacles facing businesses in the second half of 2022. However, analysts believe growing domestic demand and economic support packages will give a boost to businesses, helping reduce the negative impacts of various obstacles. Government efforts to remove bottlenecks in key economic sectors such as banking and real estate will also provide a lifeline to businesses.
