Quach Manh Hao, a lecturer at the University of Lincoln, England, assessed that the U.S. Federal Reserve (Fed) will sooner or later raise its policy interest rate, either rapidly or gradually. The Fed’s moves will cause investors to repatriate the cheap greenback to the U.S.
China has been preparing for this capital flight by devaluing the Chinese yuan since August and preventing capital from flowing out of its onshore stock market, the economist said.
Vietnam is not immune to this financial turmoil, evidenced by downward pressures on the dong, he said.
“When cheap capital came to Vietnam years ago, the USD/VND rate was stable and the State Bank of Vietnam was able to enrich its forex reserves. On the contrary, given the capital flight now, Vietnam needs to weaken the dong to retain the reserve fund. In short, there are two choices: To safeguard the forex reserves or to keep the forex rate stable,” he noted.
Market forces could lead to a 5%-10% depreciation of the dong in 2016. However, the SBV will likely intervene to make the weakening at 5%, Mr. Hao stressed.
Ho Chi Minh City Securities Corp (HSC), among the top brokerage houses in Vietnam, reckoned that the SBV was unlikely to adjust the USD/VND rate in the coming weeks and may pump foreign currencies into the market instead.
“We forecast the USD/VND rate to be adjusted [weakened] by 5% in 2016 and the SBV may revise its policy after the Tet holiday [which falls in early February],” said HSC in its report released on Dec. 15.
In a related development, the SBV raised the buying price of USD by 90 dong to 21,890 dong a dollar on Dec. 15, while keeping the selling price unchanged at 22,475 dong.
The selling price of the greenback has remained at the upper limit of 22,547 dong a dollar at banks on Wednesday morning.