Foreign reserves rise, dong increasingly stable

14:35 | 22/12/2017 Finance - Banking

(VEN) - Vietnam’s foreign reserves reached US$46 billion as of mid-November 2017. Since early this year, the State Bank of Vietnam (SBV) has purchased US$7 billion for foreign reserves while keeping a firm hand on monetary market (including exchange rate policy) management.

foreign reserves rise dong increasingly stable

The dong’s liquidity should be properly managed to help exchange rate stability

In the first 10 months of this year, Vietnam’s macroeconomic and foreign market situation was relatively good. The country reached a trade surplus of US$2.56 billion, while US$14.2 billion in foreign direct investment (FDI) capital flowed in and commercial banks bought about US$2.5 billion from indirect foreign investors.

Economists said apart from reducing interest rates to support enterprises, the SBV also did a good job in exchange rate management. The SBV’s performance, which was highly rated by international organizations, has increased foreign and domestic investors’ trust in the dong and the Vietnamese investment environment.

According to the SBV, as of October 31, 2017, the central exchange rate increased 1.41 percent and the interbank exchange rate decreased 0.22 percent compared to late 2016. Apart from spot transactions, the SBV implemented forward transactions with credit institutions to supplement tools for market members. It purchased foreign currency, and based on interest rate and exchange rate changes, will enable commercial banks to balance cash flow and have more options to sell foreign currency to the SBV.

Answering lawmakers’ questions at the 14th-tenure National Assembly’s fourth session, the State Bank of Vietnam Governor Le Minh Hung said exchange rate management should ensure inflation control, help the government’s foreign debt repayment, and pertain to impacts on import and export prices. The SBV has applied the central exchange rate, and performed flexible management, including macro management for specific periods based on market supply and demand, he said.

A recent Bloomberg assessment of Asian currencies calls the Vietnamese dong one of the most stable currencies in Asia. Domestic economists believe the stability will be maintained until the end of the year thanks to positive economic factors. Dr. Le Xuan Nghia, Director of the Institute for Business Development Studies and a member of the National Advisory Council for Financial and Monetary Policies, said foreign investors have withdrawn a large amount of their capital from Indonesia, Malaysia and Thailand, while at the same time Vietnam has attracted increasing FDI. Nghia attributed this to Vietnam’s stable exchange rate policy.

State Bank of Vietnam Governor Le Minh Hung said the State Bank has acknowledged the need to take the initiative and be flexible in management to cope with potential changes in foreign markets. With its current foreign reserves and policies, Vietnam can ensure exchange rate stability, he said.

Duy Minh