The State Bank of Vietnam (SBV), the country’s central bank, is unlikely to adjust the USD/VND rate at the moment, Truong Van Phuoc, vice chairman of the National Financial Supervisory Commission, told BizLIVE.vn.
“What should be done now is to wait for the Fed’s decision on whether to lift interest rates and market reactions, and to consider following steps,” added Mr. Phuoc, who was general director of Vietnam Export Import Commercial Bank (Eximbank).
Banks in Vietnam unanimously hiked the USD/VND rate to the permitted ceiling of 22,547 late on Monday, the first time since the monetary authority last revised up the forex rate on August 19.
The maximum rate was maintained at the banks on Tuesday morning, fanning concerns that the SBV will continue to weaken the dong soon, especially when the Fed is speculated to proceed with an interest liftoff, albeit slight, after its policy setting meeting on December 15-16.
The price of the greenback in the unofficial market soared 70 dong for buying and 80 dong for selling to respective 22,700 dong-22,730 dong.
Mr. Phuoc ascribed psychological factor to the rise of the USD/VND rate before the Fed raises rates. “The Fed has been forecast to raise rates for a long time. When the timing is nearing, banks push up the forex rate,” he said.
Sharing the same view, Dang Ngoc Duc, director of the Banking-Finance Institute under the Hanoi-based National Economics University, assessed that the SBV would not adjust the forex rate now, at least through the year’s end. The constraint in the forex market has been caused by market jitters.
Among the reasons, Mr. Duc named that 2015 is wrapping up in two weeks’ time, the SBV has committed not to depreciate the dong further, and forex needs are not urgent now.
Vietcombank Securities Company (VCBS) said in a daily report released on Monday that pressures on the USD/VND have mainly stemmed from external factors.
The strengthening of the U.S. dollar and the likelihood that the Fed will raise its policy rate have been factored and anticipated. However, the continuous and strong fall of the Chinese yuan is an unpredictable unknown for the Vietnamese economy in general and the forex market in particular.
The dong’s decline is occurring in the context that China’s yuan declined to a four-year low, putting pressure on Asian currencies before an expected increase in U.S. interest rates, according to Bloomberg.
The dong dropped due to the yuan’s decline and as the Fed meeting is coming close, Dao Duc Manh, a foreign-currency trader at National Citizen Bank, told Bloomberg. “This does put pressure on Vietnam’s central bank, but I think it will still be able to keep the reference rate stable for the rest of the year as it has previously stated.”
Huynh The Du, director of the Fulbright Economics Teaching Program, told BizLIVE that a strong currency is not good for a country, especially a developing one, as it hampers the country’s competitiveness.
“It’s hard to say how much the dong should be weakened now. Looking back to August 2015 when the Chinese central bank depreciated the yuan, the SBV should have devalued the dong by an additional 2%-3%,” Mr. Du opined.
Citing the history of China in the 1990s and Japan after World War 2, Mr. Du said that the SBV should change its mindset of keeping the dong strong.
“China and Japan used to maintain their domestic currencies weak to boost exports. However, Vietnam is doing the contrary by keeping the dong robust, which hurts domestic production as well as external trade,” the economist commented.
When asked about the SBV’s orientation for the forex rate next year, Nguyen Duc Long, deputy head of the SBV’s Monetary Policy Department, said last weekend that the central bank needs to ponder the supply-demand of forex before taking actions.
The SBV is gathering data on demand for forex and taking into account a series of factors such as FDI flows, forecasts for the global economy as well as Vietnam’s trade and payment balances. “All the actions targeting the forex rate depend on those factors,” he affirmed.
Vietnam has made three devaluations with 1% each and tripled the USD/VND trading band to +/-3% this year, leading to a 5% depreciation of the dong, after China dumped its yuan and the Fed signaled an interest liftoff.
The midpoint rate is set at 21,890 and the dong can trade as much as 3% on either side of the official reference rate.