Central bank buys 8.35 billion USD to build foreign reserves

Illustrative photo - Source: VNA

According to report recently sent by the SBV to the National Assembly’s Economic Committee, SBV said the USD/VND exchange rate and the foreign exchange market was relatively stable while the liquidity of the market was also good in the first four months of the year.

With the additional purchases, it is estimated Vietnam’s foreign reserve has hit some 67.35 billion USD, double the level recorded three years ago.

The stability of the forex market has helped the SBV further build up the country’s foreign reserves over the past year. The central bank last year also net purchased 6 billion USD, according to SBV Governor Le Minh Hung.

Analysts from the Fitch Group’s Fitch Solutions Macro Research also forecast that the ample foreign exchange reserves would help the SBV continue its course of active intervention to ensure currency stability, which suggests the Dong is likely to see minimal volatility over the coming months.

Fitch also predicted Vietnam’s exchange market would remain stable this year, supported by the country’s robust foreign direct investment (FDI), a healthy current account surplus and by the central bank’s active intervention.

“The Dong will weaken slightly against the dollar to 23,700 VND by the end of the year and average 23,440 VND per dollar over 2019, which represents a 1.8 percent depreciation from the average in 2018,” the analysts said in a recent report.

According to Fitch, the stability is thanks to the country’s robust FDI inflows into the manufacturing sector in 2019, made possible by improved diplomatic relationships combined with the Government’s open-door trade policy, alongside favourable demographics such as the size of Vietnam’s educated and low-cost labour force.

Vietnam’s strong economic growth outlook will also continue to attract FDI in the real estate sector as foreign developers look to capitalise on the rising affluence of the population and the desire for physical expansion among businesses. Real estate businesses attracted total FDI of 6.6 billion USD in 2018, more than doubling the 3.1 billion USD seen in 2017.

Fitch also forecast Vietnam’s account surplus would be around 2.1 percent of GDP in 2019, which represents an expectation for the surplus to narrow slightly from 2.2 percent in 2018.

Over the long term, Fitch forecast the Dong to weaken gradually against the dollar to due to higher inflation, but a relatively strong growth outlook is likely to put a floor under the depreciation of the currency.