Vietnam central bank sells $500-700 mln forex to cool dollar fever

Vietnam’s central bank is estimated to have sold foreign currency worth $500-700 million via spot transactions to help rein in the recent surge of the greenback.

The USD/VND exchange rate had eased on the unofficial market as well as at commercial banks as of May 3 after the SBV’s spot sales, analysts with WiResearch under data provider WiGroup said in a recent macro report.

WiResearch did not mention a time frame for the SBV’s intervention, except for noting that the State Bank of Vietnam (SBV) had nearly $90 billion in forex reserves as of 2023.

Analysts have reckoned that the rally of the greenback in Vietnam will be temporary; and that the Vietnamese dong (VND) may appreciate in Q2/2024, based on a possible increase in forex supply from foreign-invested enterprises.

The SBV is collecting feedback on amending its Circular 02/2021/TT-NHNN, potentially allowing forward trade in foreign currencies.

Although the time for the U.S. Fed’s first rate cut in 2024 has not been determined, it has scaled down its quantitative tightening, which can be considered to be slight monetary easing, the analysts commented.

Amid a strengthening of the U.S. dollar last month, the SBV was flexible with open market operations (OMOs) – conducting 7-day repos and letting 28-day T-bills mature.

As of May 3, the Vietnamese central bank had injected nearly VND60 trillion ($2.44 billion) to bring inter-bank interest rates to the target territory, the analysts said.

Meanwhile, commercial banks raised interest rates on 12-month deposits in April by 50 basis points from a month earlier. However, rates across varying term deposits remained low, indicating ample liquidity.

WiResearch analysts said they expect deposit rates to stay steady until credit demand surges in the second half of this year.

The SBV set its mid-point USD/VND rate at 24,243 Tuesday, down VND2 from Monday.

With a trading band of ±5%, commercial banks can quote the greenback at VND23,030-25,455.

Tracking the SBV’s move, state-controlled Vietcombank reduced its quote by VND2 to VND25,125-25,455 a dollar for buying and selling, respectively.

Similarly, the USD price on the free market eased by VND10-20 to VND25,700-25,770 for bids and asks, respectively.

The last major forex sales by the SBV happened in 2022 when the central bank is estimated to have sold currencies worth $21 billion between January and September to ease a USD rally. The intervention brought down the nation’s forex reserves to $89 billion, equivalent to 12 weeks of import cover, still a safe level recommended by the International Monetary Fund, according to ACB Securities.