Vietnamese currency could depreciate 2.5-3% this year: analysts

Despite global dollar appreciation pressure, the Vietnamese dong is likely fall only by 2.5-3% this year, thanks to abundant dollar supply and proactive action by the central bank.

Can Van Luc, head of the BIDV Training and Research Institute, said strong fluctuations in the USD/VND rate at certain points were caused by global appreciation of the USD, especially since May 2022 when the Federal Reserve continuously raised the basic interest rate to the current 1.5- 1.75%, to temper inflation.

However, Luc predicted that the exchange rate would remain under control in the second half of the year, rising by about 2.5% the entire year.

Major factors that would help Vietnam control the exchange rate include: the likelihood of greenback appreciation in the coming months not being as strong as in the first six months, good USD supply thanks to an expected trade surplus of $4-8 billion this year and abundant foreign currency reserve of over $100 billion, and the central bank’s continued execution of a dynamic exchange rate policy to support market stability, Luc said in a report.

BIDV Training and Research Institute is a unit of BIDV, one of the biggest Vietnamese banks by assets, with the state as majority shareholder.

SSI Securities Corporation, one of the country’s top securities brokers, also 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.

Viet Dragon Securities (VDSC) has predicted that though the pressure on exchange rate management remains big from now to the year-end, the VND would not weaken as much as other currencies, depreciating only 2-2.5% this year.

Pham Chi Quang, deputy director of the State Bank of Vietnam’s monetary policy department, said the central bank would continue to manage the exchange rate policies in an active manner, with possibly increased frequency of foreign currency sales to expand market supply if needed.

In the context of the USD exchange rate strongly fluctuating in the global market, the USD/VND exchange rate has only risen by more than 2% from the beginning of 2022 until now. This shows that the domestic foreign currency market is operating in a stable manner, with stable market liquidity and legal foreign currency needs fully and promptly met.

The USD/VND exchange rate has been under pressure because of global developments. On July 5, the central bank’s reference rate increased by VND150 to VND22,550-23,400 per USD, pushing the interbank exchange rate to increase by 2.7% compared to the beginning of 2022 and the exchange rate at commercial banks to rise by 2.5% compared to the end of 2021. But the pressure has reduced gradually since.

The S&P credit rating agency had in late May upgraded Vietnam's long-term sovereign credit rating to BB+, a "stable" outlook. Vietnam is one of only two economies in the Asia-Pacific region to have been upgraded since the beginning of the year, the other being Taiwan.

The stable outlook reflects S&P’s expectations that Vietnam’s economy would continue to recover from the pandemic challenges over the next 12-24 months, supporting the external position and containing fiscal deficits.

The agency predicted Vietnam's real GDP growth of 6.9% in 2022, with a long-term trend of 6.5-7% from 2023 onward.

HSBC has revised up Vietnam’s GDP prediction this year from 6.6% to 6.9%, while International Monetary Fund put its forecast at 6%.

The World Bank on June 7 raised Vietnam’s GDP prediction this year to 5.8% from 5.3% in its April forecast.

Vietnam's economic expansion in the first half of the year was 6.42%, higher than the 5.1-5.7% target. Growth higher than pre-pandemic levels was recorded in sectors like processing, manufacturing, goods retail, consumer services, and exports.

It aimed to achieve economic expansion of 7% this year, higher than the previously-set target of 6-6.5%, Minister of Planning and Investment Nguyen Chi Dung told a government meeting in early July.