Exchange rates under less pressure, no sharp fluctuations

Illustrative photo (Source: VOV)

The Vietnam Institute for Economic and Policy Research (VEPR) made the forecast during a conference to release its macro-economic growth report for the second quarter of 2019.

VEPR experts predicted that the United States Federal Reserve System (FED) is more likely to reduce interest rates in July.

The US added Vietnam to a watchlist for currency manipulation in May, hence forcing the State Bank of Vietnam (SBV) to regulate the exchange rate in a flexible manner and restrain the realization of monetary policy in order to create competitive edges for domestic firms involved in international trade.

The central exchange rate prescribed by the SBV continued the growth momentum seen in the first quarter of 2019, with growth slowing in the second quarter, said Nguyen Duc Thanh, head of the VEPR.

Since 2018, the SBV has been regulating the exchange rate in a proper manner, gradually decreasing under external pressures. The central exchange rate rose by 1.8 per cent in the fourth quarter of 2018, while the ratio rose slightly by 1 per cent and 0.3 per cent respectively during the first and second quarters of 2019.

The exchange rate prescribed by commercial banks ranged from 23,465 to 23,480 VND/USD in the second quarter of 2019. This was primarily caused by sharp fluctuations in several strong currencies such as USD, CNY, and JPY, along with rising concerns about the escalating US-China trade war and its subsequent negative effects on the depreciation of CNY.

However, the exchange rate set by commercial banks fell to 23,350 VND/USD at the end of the second quarter due to high expectations regarding a fall in interest rates set by the FED.

VEPR analysts said they believe that the economic growth target of 6.6 to 6.8 per cent set by the National Assembly for 2019 appears to be within reach.

The global supply chain and new economic alliances would be threatened by the ongoing US-China trade war and escalating trade tensions between Japan and the Republic of Korea, the analysts said.

They suggested that the central bank should flexibly regulate the exchange rate on a par with market rules, therefore helping to absorb external factors.