No change in sight to Vietnam’s handling of forex rate regime: official

The Vietnamese central bank has sufficient room to manage the USD/VND exchange rate and has no intention of changing its current forex regime, an official has stated.

The State Bank of Vietnam (SBV) has recently taken several measures in line with market developments to hold the Vietnamese dong (VND) steady amid headwinds in global markets and rising forex demand in the country, said Pham Chi Quang, head of the SBV’s Monetary Policy Department.

One of the latest actions has been to issue treasury bills with appropriate maturities and volumes to absorb excess liquidity in the banking system, aiming to narrow the USD-VND interest rate gap and ease the upward pressure on the forex rate domestically, Quang said in response to reporters’ questions.

Since April 19, the SBV, the country’s central bank, has been selling foreign currencies to local commercial banks to meet legitimate demands and stabilize market sentiment, Quang added.

According to analysts with Ho Chi Minh City-headquartered bank ACB, the SBV has sold at least $2.5 billion in foreign currencies to local commercial banks since April 19.

Quang affirmed that, with a daily trading band of ±5 around the SBV’s central reference USD/VND rate, there is enough room for the USD/VND to move in the domestic market.

“Some recent rumors about changes in the management of the exchange rate by the SBV are inaccurate and inconsistent with the government's goal of stabilizing the market and macroeconomic conditions, while stirring market sentiment,” Quang stressed.

The VND has depreciated around 5% against the greenback in the year to date, which Quang said was moderate in comparison with regional peers like the Taiwan dollar, Thai baht, South Korean won, Japanese yen, and the Indonesian rupiah.

He attributed the dong’s slide to the U.S. Fed’s postponement of cutting rates, a strong increase in Vietnam’s imports, and a large spread between the interest rates of the USD and VND.

However, those factors are expected to be short-lived as a projected increase in exports will help improve forex supply and the Fed is likely to cut rates by the end of this year, Quang noted.

He reiterated forecasts by several international institutions as saying that the VND will likely gain in value later this year when the above-mentions conditions materialize.

Executives at Singapore-based lender UOB reiterated their projections that the VND will appreciate against the U.S. dollar in the second half of this year, when the U.S. Fed is set to cut interest rates.

Their updated USD/VND forecasts are 25,600 in Q2/2024, 25,100 in Q3, 24,800 in Q4, and 24,600 in Q1/2025.