SBV increases reference exchange rate, foreign-exchange reserves

In the first two months of this year, the exchange rates at commercial banks have not seen much fluctuation but reference exchange rate has been continuously adjusted by the State Bank of Vietnam (SBV).
Lately, the buying price of the US dollar was also raised by VND6 per dollar by the Operations Center of SBV. The operator is supposed to take advantage of favorable market conditions to buy in the US dollar, increasing foreign-exchange reserves.
Last year, the reference exchange rate gained 1.45 percent in total while exchange rate on interbank market as well as free foreign exchange market surged roughly 2.38 percent and exchange rates at commercial banks climbed 2.16 percent. The US dollar exchange rate against the Vietnamese dong increased mainly because the US Federal Reserve had raised its benchmark interest rate for four times to 2.25-2.5 percent per annum. In addition, some other foreign currencies had devalued by 2.5-10 percent compared to the US dollar. Of which, the Chinese renminbi depreciated up to 10 percent.
However, exchange rates at commercial banks have been calm since the beginning of the year. At Vietcombank, the exchange rate closed at VND23,150-VND23,250 per dollar last weekend, down VND5 per dollar in buying price and up VND5 per dollar in selling price.
Buying prices of the US dollar at other banks also fluctuated around VND23,097 to VND23,160 per dollar while selling prices swung from VND23,240 to VND23,259 per dollar, almost unchanged compared to the beginning of this year.
The US dollar exchange rate on free market was significantly low at VND23,200 – VND23,230 per dollar.
According to Dr. Bui Quang Tin, CEO of Bizlight Business School, the steadiness of exchange rate on the market at the beginning of this year originated from related statistics figures which affect the trend of exchange rate since the beginning of this year and likely to prolong until the end of the year.
Particularly, the amount of remittances hit a record of $16 billion last year whereas other countries recorded a drop in remittances. At the same time, trade balance saw a surplus of nearly $7 billion in 2018 and FDI capital disbursement was nearly $20 billion. In addition, SBV’s monetary policy aimed to keep the exchange rate’s stability.
Bao Viet Securities Company also said that it is forecast that the balance of payment will continue to see a surplus this year thanks to growing export. The country will continue to lure more FDI capital and receive a stable remittance flow. In the first two months of this year, FDI capital disbursement reached $2.58 billion, up 9.8 percent over the same period last year. On the Ho Chi Minh City and Hanoi stock exchanges, foreign investors had net bought around VND3.52 trillion. Thus, foreign currency supply is rather optimistic.
Globally, after increasing its benchmark interest rate for the fourth time in December last year, Fed announced that there would be no interest rate rise in the near future. This is suitable with a slowdown in economic growth of the US economy and other economies across the world.
These factors will help exchange rate to be stable and post an increase of below 3 percent. It will also support enterprises’ operation, especially for ones which have access to foreign currency loans of banks.
Besides steadiness of exchange rates of commercial banks, reference exchange rate has been attracting attention. Continuing its tendency from the end of last year, SBV has constantly raised its reference exchange rate since the beginning of this year. In comparison with January, reference exchange rate emerged 0.2 percent in February while exchange rates at commercial banks were almost unchanged.
Meanwhile, in the first half of February, the US dollar index sharply strengthened but soon declined due to changes in Fed’s monetary policy, leading to forecasts that the US dollar will hardly increase strongly this year.
In the first two months of this year, reference exchange rate has escalated 0.5 percent from VND22,825 to VND22,946 per dollar. On March 8, exchange rate at Operations Center of SBV was listed at VND23,200 and VND23,584 per dollar, with no changes in buying price but an increase of VND6 per dollar in selling price compared to the previous day.
On January 7, SBV resumed the purchase of US dollar with a worth of around $200 million after halting for a half year due to strong fluctuation of the US dollar on the market. In the next two days, the central banks bought $500 million more of US dollar.
Last year, liquidity of credit union system was plentiful as SBV had bought a large amount of US dollar. However, since late-July last year, liquidity became poorly due to pressure caused by exchange rate and increasing demand for capital at the end of the year. Nevertheless, the amount of US dollar bought by SBV in the whole year touched $6 billion. This was the foundation for market stability and curbed the depreciation of the Vietnamese dong to just 2.16 percent while other currencies devalued heavily.
Therefore, the recent movement of SBV is said to be the measure for the central bank to attract the US dollar and increase US dollar reserves when exchange rate is stable to make provision for foreign currency supply in case there is a tension on the monetary market in the future. Moreover, an increase in reference exchange rate also helps widen the exchange rate range traded at banks, preventing a shock when fluctuation occurs. Particularly, with the current reference exchange rate, banks have been applying a minimum rate of VND22,258 per dollar and a maximum rate of VND23,634 per dollar.

By Bao Tung – Translated by Thuy Doan

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