Exchange rate in 2020 will increase in allowed amplitude

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By 2020, the exchange rate will be adjusted flexibly and reasonably. Photo: Internet

Tilt towards VND

In 2019, the macro-economy remained stable and the value of Vietnamese currency had stability in the context of fluctuating world economy, especially the sharp decrease and increase in exchange rates of many international currencies. On December 25, the central exchange rate announced by the State Bank was 23,163 VND/USD, down 1 VND compared to the previous day. This is quite a high rate compared to the beginning of the year, up more than 1.4 percent. Despite always closely following the movements of the world market and basing on the basket of currencies used to calculate the central exchange rate, this central exchange rate is considered low compared with the fluctuations of some key currencies such as USD and RMB.

Although the increase and decrease of the central exchange rate is announced daily by the State bank, sometimes there are sharp increases and decreases but the exchange rate in commercial banks in the domestic market remains stable. Currently, the exchange rate between USD and VND in banks has increased compared to the beginning of the year, but the amplitude is less than 2 percent. The strongest fluctuations of the foreign exchange market were in June and July due to the impact of international factors, especially the strong devaluation of the Yuan by China due to trade war tensions, causing the sharp increase in the domestic exchange rate. Although the domestic market has fluctuated, the operations of import and export enterprises have not been significantly affected. The reason is that the State Bank employed timely interventions by selling reserved foreign currencies to stabilise the market, helping people’s psychology stay stable and not speculating to make profit from the exchange rate.

In the last days of 2019, according to research of the Financial Market Development Board, Institute of Strategy and Financial Policy (Ministry of Finance), the average exchange rate of commercial banks is at 23,176 USD/ ounce, down 0.48 percent compared to the end of 2018. On the free market, the exchange rate is 23,189 USD/ounce, down 0.67 percent compared to 2018. Banks said foreign currency liquidity was abundant, meeting foreign currency demand of the people and manufacturing enterprises.

Experts of the Financial Market Development Board, Institute of Strategy and Financial Policy said that the exchange rate between USD and VND in 2019 was stable, narrowing the gap between the central exchange rate and exchange rates at commercial banks and exchange rates on free markets. The main factors that help maintain the exchange rate were the central exchange rate mechanism and tools to regulate foreign exchange, which were implemented to limit speculation of foreign currencies. Moreover, supply of foreign currencies was abundant due to the growth of foreign direct investment (FDI). Currently, difference between VND and USD interest rates are high and foreign currency flows to banks still tilt toward VND.

Exchange rate supported

In 2020, experts said Vietnam's financial and monetary market continues to be supported with a stable business environment, inflation controlled at low level, high import –export trade surplus, growing attraction and disbursement of foreign investment. However, the world market continues to be full of fluctuations such as US-China trade war tensions may not end; world economic growth may slow, trade protection may increase and Vietnam’s major import export markets could also slow down.

Thus, experts of the Financial Market Development Board said the VND/USD exchange rate in the first months of 2020 will still be under increasing pressure, but in the long term, VND will only increase slightly against USD thanks to the support of positive factors such as production and business and economic growth. According to Financial and banking expert Dr. Nguyen Tri Hieu, the exchange rate in 2020 is set to increase due to external impacts, meaning Vietnamese currency may depreciate by 2-3 percent.

Although the exchange rate is expected to increase next year, the amplitude is not high. Experts said there are many factors supporting the State Bank to stabilise the central exchange rate. Specifically, the difference in interest rates between VND and USD widened, remittances and foreign currencies from trading transactions and capital sales continued to flow to the country, helping foreign exchange reserves hit a record of US$73 billion. Currently, the State Bank has net purchased $6 billion.

Abundant foreign exchange reserves will ensure the State Bank can use flexibly and effectively direct and indirect tools to adjust exchange rate appropriately according to policies and objectives. Therefore, the exchange rate trend in the next year will be in the allowed amplitude, even one channel will help the economy avoid "shocks" caused by world economic developments.