Exchange rates stable, but two-percent increase possible

09:14 | 28/06/2019 Finance - Banking

(VEN) - The State Bank of Vietnam (SBV) has many tools to regulate currency exchange rates in order to keep the market stable.

exchange rates stable but two percent increase possible

According to a report recently released by banking expert Can Van Luc and his fellows from the Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV), a Chinese yuan depreciation due to concerns about the withdrawal of capital, similar to the 2015 depreciation, is unlikely. In addition, China wants to avoid criticism for money manipulation and the escalating US-China trade war, and still embraces the process of yuan internationalization, he added.

In the medium- and long-term, the USD/VND exchange rate will rely on an array of macroeconomic indicators, such as gross domestic product (GDP) growth, the balance of payments, the balance of trade, and foreign direct investment (FDI) inflows, as well as appropriate management and operations of the central bank.

Dr. Bui Quang Tin from the Ho Chi Minh City Banking University said the central exchange rate of USD/VND is calculated based on eight foreign currencies, including the USD, EUR, JPY, CNY, and SGD. The recent increase in exchange rates has not affected the supply and demand of foreign currencies in the domestic market. Basically, the favorable state of the economy ensures market stability, while the SBV has many tools to regulate exchange rates.

Foreign capital is bountiful due to the robust growth of FDI, especially from the Republic of Korea and China, that are seeking to invest in Vietnam through mergers and acquisitions (M&A) deals. This proves that Vietnam enjoys macroeconomic stability, which investors value.

According to commercial banks, exchange rates are not likely to fluctuate this year due to the country’s plentiful foreign exchange reserves, which have been growing impressively in recent years; and the robust growth of FDI.

The recent increase in the USD/VND exchange rate was considered necessary to ensure that Vietnamese products are competitive, especially when many other currencies have become weaker against the US dollar. In the short term, exporters will benefit from a stronger dollar as they receive payments in dollars. Firms disadvantaged by a stronger dollar are those that issue loans in dollars. In the medium and long term, if exchange rates keep rising, it will raise import prices and affect Vietnam’s trade balance and inflation.

Vo Tri Thanh, former deputy director of the Central Institute for Economic Management (CIEM), said the SBV has been very active in management and operations. Therefore, the overall exchange rate may increase by only two percent this year.

Thanh Thanh