State Bank of Vietnam buys up $7 billion to boost foreign exchange reserves

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Vietnam has bought a large sum U.S. dollars to increase its reserves.

The SBV's efforts have helped keep the foreign exchange rate and market stable. The exchange rate has climbed slightly this year to between VND22,290 and VND22,230 to the dollar, according to the Bank for Investment and Development of Vietnam (BIDV).

A BIDV report on Vietnam's macroeconomy said that “the trade balance is expected to record a surplus next month, and the foreign exchange rate in the final half of 2016 is forecast to remain stable between VND22,300 and VND22,500 for $1, subject to positive signs from the U.S. economy.”

The report also said that the inter-banking interest rate has fallen sharply due to VND credit growth that has surpassed local deposits. The SBV also poured over $3 billion into the market via foreign exchange channels, contributing to the interest rate cut.

According to BIDV, the inter-banking interest rate is likely to rise again if the central bank withholds its dollar injection into the market. “In the long term, pressure on interest rates could occur if credit growth hits 18 to 20 percent this year, but it only rose by four percent in the first four months,” the report said.

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BIDV experts forecast that the government bond coupon rate will continue to fall if credit disbursement remains low, allowing the SBV to continue loosening its monetary policies.