After the State Bank of Vietnam (SBV) raised the exchange rate by one percent, the US dollar continued to appreciate on the free market. The SBV reaffirmed its adherence to the pre-set goal of not increasing exchange rate more than 2 percent in 2015.
No more room for new rise
On May 7, the SBV announced an upward revision of the USD/VND interbank exchange rate by 1 percent to 21,673. This move came after commercial banks raised their quoted exchange rates.
The market was unchanged after the central bank lifted the exchange rate. The USD/VND bid rate was popularly quoted at 21,710-21,720. But on May 13, commercial banks raised their bid rate by VND20-30. Popular rate was in the range of VND21,760-21,775 for a US dollar. However, quoted prices were still VND115 below the upper limit of the band. Market supply and demand was considered stable.
Why did the SBV not opt for a smaller hike instead of the full 1 percent? With this choice, the target of 2 percent adjustment set for this year was full. This decision ended market expectations for exchange rate fluctuations from now till the end of the year. If the central bank had chosen to raise 0.25 percent or 0.5 percent, expectations for new rate hikes would have stayed alive.
Thus far, Vietnam has managed to stabilise the exchange rate as announced by the SBV Governor at the start of this year. There is no sign for a change in the near term.
At the Spring Economic Forum 2015, Dr Ha Huy Tuan, Vice Chairman of National Financial Supervisory Commission (NFSC), said although the exchange rate was revised up by 1 percent at the start of the year, coupled with the regulator’s commitment of not adjusting more than 2 percent this year, the USD/VND exchange rate was still under pressure because US dollar appreciated against many other currencies.
Spurring exports
The exchange rate hike was said to support exports and economic growth.
In the first four months of this year, Vietnam’s exports rose 8.2 percent, the lowest since 2010. Vietnamese dong depreciated 1.3 percent since the beginning of this year, thus placing Vietnamese exporters at a disadvantage over comparable competitors from Indonesia and Malaysia. The currencies of these countries dropped 5.7 percent and 2.9 percent in the same period, respectively.
The SBV adjusted the exchange rate as the local dong strengthened against currencies of other emerging economies in Asia, not good for an economy trying to boost growth and enhance competition. The dong exchange rate weakened against the currencies of major export competitors like the yuan of China, the rupee of Sri Lanka, the taka of Bangladesh, the peso of the Philippines, or the baht of Thailand.
However, pressures on Vietnamese dong are growing as other currencies in the region have weakened 4-5 percent. Besides, the pressures weigh towards the end of the year.
In addition to boosting exports and economic growth, in a report on SBV’s dong depreciation, HSBC said the exchange rate change is an active measure of the SBV to narrow trade and improve the balance of payments. Since early this year, the trade deficit amounted to US$3.3 billion, the highest since 2011.
HSBC forecasts that the USD/VND exchange rate will hover at 21,750 from now to the end of 2015.
“Dong depreciation results in an increase in external debt. Putting export pluses, import minuses and foreign debt repayment, prudence is necessary,” a banker said. However, with the overall balance of payments of US$5 billion, an SBV official believed that the regulator will control the situation.
Le Minh
Vietnamese
