Vietnamese currency VND may have bottomed: UOB

By Minh Anh
Fri, December 8, 2023 | 1:31 pm GMT+7

Like other Asian peers, it appears that the bulk of the recent Vietnamese dong (VND) selloff is over, researchers at Singapore-based United Overseas Bank (UOB) said in a note.

The USD/VND exchange rate has retraced lower after reaching UOB’s fourth-quarter forecast of 23,500 in October after the Fed signaled a possible end to its rate hike cycle, they noted.

A bank clerk counts VND bank notes at a transaction office in Hanoi. Photo by The Investor/Trong Hieu.

A bank clerk counts VND bank notes at a transaction office in Hanoi. Photo by The Investor/Trong Hieu.

The researchers predicted that while the VND may follow the broad Asia forex recovering trend, gains may be limited by the modest economic rebound in 2024. They update their USD/VND forecasts at 24,000 in Q1/2024, 23,800 in Q2, 23,600 in Q3 and 23,500 in Q4.

State-controlled Vietcombank, the largest FX trader in the country, quoted the greenback at VND24,030 and VND24,400 for bids and asks on Friday, down both VND30 from Thursday, respectively.

According to UOB, Vietnam’s economy is on track for a further rebound in Q4/2023 after its real GDP growth accelerated further to 5.33% year-on-year in Q3, from 4.14% in Q2. Data releases for the Oct-Nov period reaffirm that activities have stabilized, and in some cases, improved markedly compared to the first half of the year.

“This was underpinned by improvements in the trade performance, manufacturing sector output and domestic activities, after struggling in the first half of 2023,” they noted.

The economic rebound has been also backed by interest rate cuts from the central bank and the government’s various business-supporting policies. Among them, a cut to value-added tax by two percentage points from 10% to 8%, effective January 1 to June 30 next year, with certain industries excluded from the reduction, will help to ease costs burden for businesses and will further encourage greater output.

The researchers expect the momentum from Q3 to carry over to Q4, especially with more supportive domestic policy. They maintain Vietnam’s full-year growth forecast at 5.0%, with the assumption of further acceleration of real GDP growth in Q4 to 7% year-on-year.

UOB's projections for Vietnam.

UOB's projections for Vietnam.

The central bank successively cut interest rates earlier this year, bringing its refinancing rate to 4.50%. However, with the pace of economic activities on the mend and inflation rates already easing below the target level, the possibility of further rate cuts has diminished, the commented.

The Vietnamese central bank is expected to maintain its refinancing rate at current level of 4.50%, reversing UOB’s earlier call for a 100 basis-point cut.

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