Central bank sells greenback to stabilise forex market

By The Investor/VietnamPlus
Tue, July 19, 2022 | 11:06 am GMT+7

The State Bank of Vietnam has sold about $12-13 billion in the year to date to stabilise the domestic forex market, according to Viet Dragon Securities Corporation (VDSC).

State Bank of Vietnam headquarters in Hanoi. Photo courtesy of the government's portal.

State Bank of Vietnam headquarters in Hanoi. Photo courtesy of the government's portal.

The figure was equal to some 11% of Vietnam’s foreign exchange reserves. The country’s forex reserves are currently at more than $100 billion, equal to 3.1 months of imports, and are forecast to keep rising.

The value, which is four times higher than in 2015, is expected to be an important buffer to stabilise the domestic forex market and help the country’s economy withstand external shocks.

According to VDSC, the central bank's (SBV) move was aimed to restrict the devaluation of the Vietnamese dong, reduce pressure on the foreign exchange rate, and balance the supply and demand of the greenback in the market.

In the context that most currencies have fallen significantly against the US dollar after the Federal Reserve raised interest rates, the dong has only weakened against the US dollar by around 2% so far this year, which shows the dong is relatively stable and listed among currencies with the lowest devaluation in the Asia-Pacific region.

According to VDSC, despite several net withdrawals of the dong through the sale of the dollar and T-bills, domestic demand for the greenback remains strong. It has shown no signs of cooling down as the interest rate of dollar loans in the interbank market continues to increase and the rate gap between dollar and dong loans in the interbank market also keeps rising.

In the short term, VDSC expects the SBV will continue to use the foreign exchange reserves and the T-bill sales to withdraw the dong in the open market operation (OMO) to reduce the dong liquidity in the banking system so as to curb pressure on the exchange rate.

VDSC forecast the domestic exchange rate might be under higher pressure at year-end. However, it still expects the dong to depreciate only about 2-2.5% in 2022, remaining unchanged against its previous forecast.

Pham Chi Quang, deputy head of the SBV’s currency policy department, last month affirmed that with foreign exchange reserves of more than $100 billion, the central bank will continue to sell its foreign currency to stabilise the market.

The SBV will continue to manage the currency exchange rate with flexibility to absorb external shocks, help stabilise the macro economy and control inflation, according to Quang.

Can Van Luc, head of the BIDV Training and Research Institute, predicted that the exchange rate would remain under control in the second half of the year, rising by about 2.5% the entire year.

SSI Securities Corporation, one of the country’s top securities brokers, expects the foreign currency supply to be more positive this year owning to robust import-export activities and remittances toward the year-end. However, pressure on the exchange rate still persists and at some points the dong may depreciate 2.5-3% against the USD in 2022, SSI noted.

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