The State Bank of Vietnam (SBV), the country’s central bank, will be capable of keeping the USD/VND rate stable in the second quarter of this year as it has “an ace up its sleeve”, the Vietnam Economic Times cited researchers at Hanoi-based Maritime Bank (MSB) as saying.
The Vietnamese dong (VND) weakened 5.07% against the U.S. dollar in 2015, after reaching a peak of 22,545 dong per USD on December 21, 2015, missing the SBV’s target set for the year.
However, since the SBV set a daily reference rate while keeping the +/-3% trading band on January 4, upward pressure on USD/VND rate has waned while USD hoarding has dropped, say MSB researchers.
The daily USD/VND fixing has helped orient the market, mitigate external shocks, and hamper speculation in the greenback. In addition, the application of forward sale contract between the SBV and commercial banks has also lent support.
MSB researchers reckon that the banking regulator has other measures on the cards to dampen speculation in foreign currency. Among them, the SBV can lower the interest rate on USD deposits to below 0% or setting diverse VND required reserve ratios for banks that have different forex positions.
In addition, in the international market, the USD has been depreciating while the Chinese yuan has bounced back after a drastic devaluation at the start of this year, the researchers add. The USD supply is seen robust thanks to increasing foreign direct investment (FDI.
“In Q2 2016, we expect the USD/VND rate to continue staying steady or decline slightly, enabling the SBV to buy in foreign currency, enrich the forex reserves and improve VND liquidity,” MSB researchers say.
In its latest “Greater Mekong Outlook” report, ANZ said that the SBV’s daily mid-point USD/VND rate would allow for more frequent yet smaller adjustments in the VND. On a YTD basis, the VND had strengthened 0.9% against the USD.
“Given the selloff in the USD following the FOMC, we are seeing downside risks to our December 2016 USD/VND forecast of 23,000,” ANZ forecast.