Experts propose flexible forex policy

15:13 | 27/04/2015 Economy

Economic experts have suggested the State Bank of Vietnam (SBV) adopt a flexible foreign exchange policy and adjust it based on supply and demand, instead of forcing the Vietnam dong-US dollar exchange rate to move within 2% a year.

Experts propose flexible forex policy

Dr. Nguyen Thuong Lang from National Economics University said the SBV should stop the scheme to devalue Vietnam dong by only 2% every year as there are no scientific foundations for this. Instead, the central bank should let market forces to decide the price of the greenback on the local market.

Lang acknowledged that the SBV’s forex rate policy has produced positive effects, helping stabilize the value of the domestic currency during the economic slowdown. But he noted that as the balance of payments has run a surplus in three consecutive years, the 2% dong devaluation plan every year is unnecessary.

Besides, implementing the plan is against the basic rules of a market economy.

However, Nguyen Thi Hong, deputy governor of the central bank, told the recent Spring Economic Forum 2015 in Nghe An Province that as the forex rate is a sensitive issue as it is driven by many factors including supply and demand, psychology and expectations, the central bank controls it based on developments of the entire economy.

This year, the central bank will still stick to keeping the forex rate move within a 2% band based on exports and imports, foreign reserves, balance of payments, inflation and public debt influence. However, the agency will closely follow market developments to adopt suitable policies, Hong said.

She said strong forex rate fluctuations in recent days are normal.

Dr. Nguyen Duc Do from the Institute of Economics and Finance cast doubt on dollar speculation given forex rate fluctuations though the central bank said there was strong dollar supply.

Do proposed if Vietnam’s economy grows 6-6.2% this year and deflation is in sight, the central bank should consider devaluing the dong devaluation by 3%, especially when the task of lowering bank interest rates by one to 1.5 percentage points is difficult to realize amid the current context of bad debt, budget deficit and high public debt.

Source VOV