The weakening U.S. dollar in November helped alleviate some of the pressure on the USD/VND exchange rate, the World Bank said in its December Vietnam Macro Monitoring edition.
It added amid tight global financial conditions and weakening external demand, Vietnamese monetary authorities could consider allowing further flexibility in its exchange rate to accommodate external shocks.
It could be “complemented with judicious use of reference interest rates and prudent use of direct FX interventions to ensure FX reserves are protected,” the WB said.
The Vietnamese dong appreciated 0.8% in November, against the 9.1% accumulated depreciation since the end of 2021, according to the bank's report.
The general weakening of the U.S. dollar in international markets contributed to the jump. Besides, the State Bank of Vietnam’s increase of key policy interest rates by 200 basis point in September and October 2022 also contributed to easing depreciation pressure on the local currency.
“A more prudent and prioritized expenditure strategy should focus on ensuring investments in human capital and resilient and green infrastructure to help bolster economic potential and resilience,” the bank noted.
Besides, the institution warned that the post-Covid-19 consumption rebound appears to be fading and tighter domestic financial conditions and rising inflation could affect domestic demand going forward. Meanwhile, the external demand is softening, weighing on exports.