Central bank prioritises currency market stability

10:17 | 10/02/2014 Economy

The State Bank of Vietnam (SBV) is committed to a flexible approach to management that maintains currency market stability and increases foreign currency reserves.

The central bank considered 2013 a successful year, immediately and successfully intervening in the market when necessary to keep exchange rates under control. It even had no need to push the limits of its own set 2–3% rate adjustment margin.

A success story

The central bank’s decisions helped stabilise exchange rates, increase foreign currency reserves, and enhanced consumer trust in the domestic currency (VND).

SBV Deputy Governor Nguyen Dong Tien says the bank recognises the importance of leaving enough management leeway to respond to any unforeseen market developments. Last year, this flexibility helped authorities quash damaging rumours and cool off the foreign currency market before pressures escaped control.

“Consistency reinforces market trust,” Tien says. “Fluctuations are only short term.”

He attributes the bank’s 2013 successes to its responsive management of foreign currencies, gold, and the anti-dollarisation push.

“Gold is no longer a primary lending instrument. Gold traders can conduct transactions through appropriate networks. This stabilises the exchange rate.”

National Financial Supervisory Council Vice Chairman Truong Van Phuoc says the SBV removed gold from credit organisation transactions after anticipating foreign currency market instability.

“These administrative interventions are tough but help maintain the value of the domestic currency against the US dollar.”

Flexible management

SBV Deputy Governor Tien affirmed the central bank will continue its policy flexibility into 2014, hopefully reducing the economy’s dependence on dollars and gold and supporting export business growth.

He says the bank will manage the currency market according to the National Assembly’s set 5.8% economic growth target and 7% inflation maximum.

Economic experts concur on the need for flexibility but warn the ramifications of any adjustments must be examined to avoid big shocks to the economy.

SBV Foreign Currency Management Department Head Nguyen Quang Huy believes the bank’s most appropriate management mechanism is currently short-term exchange rate adjustments.

The bank also needs hedging instruments to limit exchange rate risks, as rare as their use may be.

Huy thinks the central bank faces three major currency market management challenges in 2014: an imbalance between demand and supply, market manipulation, and unpredictable investor psychology.

He admits management is made harder by exchange rates’ dual role as “both a management tool and a management target.” As an instrument, it can help augment foreign currency reserves, stabilise the macroeconomy, improve competitive capacity, and ensure credit organisations operate safely./.

Source VOV News

Theo ven.vn