Vietnam central bank stands ready to cool overdone dong depreciation

The State Bank of Vietnam (SBV) is aware of the importance of keeping the USD/VND exchange rate steady and stands ready to put a brake on the dong devaluation run when necessary, said an official.

The SBV will continue to manage the exchange rate in an “extremely flexible” manner, ensuring that the rate can move up and down in line with global trends while guaranteeing stability, SBV Deputy Governor Dao Minh Tu said at a regular government press meeting on Wednesday.

The USD/VND has been on the rise since the Lunar New Year holiday, breaching the psychological threshold of VND25,000 a dollar at banks on Wednesday.

State-run Vietcombank is offering the greenback at VND24,770-25,140 a dollar for bids and asks, respectively, VND10 higher than Wednesday.

Gold shops in major cities on Thursday quoted the USD at VND25,440-25,540 for buying and selling, up VND20 from Wednesday on both sides.

The SBV lifted its mid-point exchange rate to VND24,038 on Thursday, up VND18 from Wednesday. The rate increased VND15 on Wednesday.

Per the SBV's trading band of ±5%, commercial banks can set their exchange rates between VND22,836 and VND25,240.

Tu attributed the dong devaluation to the strengthening of the USD as the Fed has yet to determine the timing for its quantitative easing; VND-denominated interest rate reductions that led to a widening gap with the USD-denominated rates on the interbank market; and rising imports in the first months of this year, leading to higher forex demand.

He noted that the dong devaluation is still milder than other currencies. After a loss of 2.9% in value in 2023, the dong has devalued 2.6% since the start of this year, but lower than a decrease of 5.93% of the Thai baht, 3.88% of the Korean won, and 7.52% of the Japanese yen.

Besides the tools available, the banking regulator will strive to ensure forex supply to meet legitimate needs, Tu stressed.

The SBV was estimated to have tapped 20% of its forex arsenal to intervene in the market in 2022, causing its reserves to fall to some $89 billion at the end of that year.

According to International Monetary Fund (IMF) projections in September 2023, Vietnam had gross international reserves of $98.7 billion at the end of the same year and $110.5 billion this year.

In three weeks from mid-March, the SBV withdrew some VND170 trillion ($6.8 billion) in cash by issuing 28-day T-bills. The first batch, worth VND15 trillion, will mature on April 8.

He also highlighted the role of communication played by press agencies in order to make clear that effective management of the forex rate is a top concern of the government.