Flexible exchange rate adjustment

10:32 | 26/08/2015 Finance - Banking

(VEN) - In a context where China devalued their currency for three consecutive days in mid-August, the central banks of other countries have adjusted their currencies.

Flexible exchange rate adjustment

The State Bank of Vietnam (SBV) immediately widened the trading band between the Vietnamese dong and US dollar from +/- 1 percent to +/- 2 percent on August 12 and to +/- 3 percent on August 19 in order to ensure the competitiveness of Vietnamese products as well as maintain macroeconomic stability.

The interbank average exchange rate is maintained at VND21,890 per dollar. With the current trading band, the ceiling rate is VND22,547 per dollar and the floor rate is VND21,233 per dollar.

SBV Deputy Governor Nguyen Thi Hong said that widening the trading band was a necessary move to create flexibility for the exchange rate before adverse impacts on the international market. Since the beginning of the year, the international market has witnessed many developments beyond the forecasts such as oil prices down to the lowest level, the deterioration of the European economy and an economic recession in Greece. The SBV has given forecasts about the extraordinary changes adversely affecting the exchange rate and export value since early 2015. Therefore, they have made appropriate adjustments to stabilize the foreign exchange market and exchange rate. However, the Chinese yuan’s devaluation has led to a slump in a series of Asian currencies as well as consumer price index on the international market.

“China and other Asian countries are Vietnam’s large trade partners and the country has also achieved trade deficit with China. Therefore, the Chinese yuan’s devaluation will have adverse impacts on Vietnamese export-import activities. The decision to widen the trading band is seen as a necessary move,” Nguyen Thi Hong said.

In the coming time, the SBV will implement measures and policy tools to continue stabilizing the exchange rate and the foreign exchange market in a specified range and closely monitor market developments to operate fiscal and monetary policies in an appropriate manner.

Economists agreed on widening the trading band between the Vietnamese dong and the US dollar from +/- 1 percent to +/- 2 percent on August 12 and to +/- 3 percent on August 19. Dr Nguyen Tri Hieu said that the SBV had no need to intervene in the free market as widening the trading band would make its market cool down. Economist Tran Du Lich also said that the adjustment has helped the SBV avoid dumping and support export-import activities, creating better conditions for the market. In addition, it’s a necessary step to ensure that the exchange rate should be operated more flexibly in the coming time.

 

Duy Minh

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