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What do you think about the exchange rate situation in the coming time, especially when the US Federal Reserve (FED) continuously signal to raise the interest rate of USD?

In general, the exchange rate situation in 2017 will face new pressures, especially when FED may continue to increase the interest rate several times in 2017. The reason is the US economy can well recover with unemployment decrease due to Donald Trump's policy commitments (eg tax cuts, large investments in infrastructure) which could cause budget deficits, inflation increase and interest rates should rise to fight against the inflation. The rising of interest rates will cause the increase of dollar value in comparison with most of the major currencies in the world, putting pressure on the VND which has been higher valued at around 25% compared to 2009.

In addition, despite foreign exchange reserves having a sharp increase in 2016, estimated at $US 41 billion by the end of 2016, it is still relative thin and currently at the lowest level compared to other countries in the region (Calculated by the number of import months). The remaining impact of the exchange rate stabilization through interest rates is not too much due to the objective of supporting growth through indicators approved by the National Assembly and the Government. Therefore, the ability to keep exchange rates stable in the long term is difficult.

However, in my opinion, the exchange rate will not have sudden big shocks because the operating mechanism is more flexible, and in the short term, the State Bank of Vietnam (SBV) is able to intervene if it still wants to stabilize the exchange rate. As forecast, the total exchange rate fluctuation this year may be around 4-5%.

The SBV has repeatedly put forward a message that they will stabilize the exchange rate. In your opinion, which is the basis for the SBV to make these statements?

Since 2016, the exchange rate management system has been more flexible, more marketable and the exchange rate band has been raised to 3% thanks to the SBV's new policy. Therefore, for most of the months in 2016 the exchange rates and foreign exchange market have been relatively stable, although there are external shocks such as the Brexit event, FED raised the interest rates and the US presidential election.

Due to the fact that the central exchange rate mechanism has been more flexible, thus partly limiting the psychological factors and speculation. Secondly, the information dissemination has also improved before each shock to calm the market. Thirdly, the balance of payments improved significantly (trade surplus, increased remittances and disbursed FDI capital, declined withdrawal trend from emerging markets). Accordingly, the supply of foreign exchange was abundant, the SBV has increased its reserves on a relatively large scale.

With the complex domestic and foreign economic context, which difficulty will the exchange rate management pose to the SBV?

Facing with the apparent pressure on the exchange rate, the SBV has also come up with more urgent solutions. However, the current way of exchange rate management is not much different than before. Although the central rate has flexibly changed daily, the cumulative annual adjustment is still modest.

Keeping the exchange rate stable in the context of increasing pressure from the outside as today which is considered as the SBV's expectation to stabilize the market, prevents the increase tend of inflation risks, keeps the value of domestic currency, and helps to reduce foreign debt. However, maintaining a stable exchange rate over a long period of time, which causes the VND to be overpriced, may affect psychological factors. The efforts to reduce interest rates to support growth will also be more difficult. Neutral measures to stabilize the exchange rate will be more expensive as the increase of the intervention scale, monetary policy independence will be less in the context of financial integration.

Could you tell us the positive and negative impact of exchange rate fluctuations on the macro economy, especially export and import activities in the future?

Our studies show that, due to the fact that the structure of domestic production and export depend largely on imported inputs while the supporting industry is not developed yet, so the exchange rate is less closely related with trade balance.

Vietnam export is still mainly dependent on imported materials for production, including: machinery, equipment, tools, spare parts and materials. This ratio always occupies over 90% of the total value of imported goods, lasting continuously for many years without signs of change. The majority of Vietnam's exports are processed goods, so increase in export means that imported raw materials also increased. However, keeping the exchange rate stable in the long term may have the negative effects as above.

What do you think about the initiative of enterprises, banks as well as management agencies in the movement of exchange in the current context?

As far as I can tell, commercial banks as well as enterprises have better perception of the exchange rate fluctuation, especially in the context of a fluctuating world and difficult to predict. However, in the current context, the resisting of exchange rate risks is still limited. Being active in the face of more volatile fluctuations in exchange rates means that financial markets and financial instruments, along with non-financial firms, can self-insure the risks associated with a developed and modern foreign exchange market.

The exchange rate may increase at the range of 2% - 4% in 2017 VCN - According to experts, the exchange rate will be continuously under pressure from the world in ...

For example, enterprises can hedge exchange rate risk through swapping risk with commercial banks, commercial banks can self-hedge by swapping risk with foreign institutions. But this only works if the capital controls are completely removed. Currently, the capital account has not been completely opened because the domestic financial market has not really developed, the competitiveness of financial institutions in our country is low and the financial supervision mechanism is not adequate and effective.

Thank you, Sir!