Operations on the foreign exchange market were basically smooth. Photo: Internet

Exchange rate fluctuates strongly due to psychological factors

Assessing Vietnam's foreign currency market in 2022, the State Bank of Vietnam (SBV) said, with many efforts in working and negotiating by the Government and the SBV.

On November 10, 2020 the US Department of Treasury issues a Report on “Macroeconomic and foreign exchange policies of major US trading partners”.

In this reporting period, the US Department of Finance has removed Vietnam from the monitoring List for currency manipulation. At the same time it is highly appreciated the management of monetary and exchange rate policies of the State Bank as the world economy is facing many difficulties and challenges.

According to the State Bank of Vietnam, the domestic foreign currency market is basically stable, the exchange rate is actively and flexibly managed to adapt to unpredictable developments and the great pressure of the international market.

Speaking at a press conference on the implementation of the banking sector's tasks in 2023 on December 27, Standing Deputy Governor of the State Bank Dao Minh Tu assessed that, in 2022, there will be a time when the foreign currency exchange rate will rise up to 9 % compared to the end of 2021 due to temporary psychological factors.

However, by the end of the current year, the USD/VND exchange rate has increased by about 3.81% compared to the end of 2021, the devaluation of VND against USD is lower than other currencies in the world.

The representative of the State Bank of Vietnam emphasized that operations in the foreign currency market were basically smooth, legal foreign currency needs were met by credit institutions, and no commercial banks encountered difficulties or foreign currency imbalance, including the demand for foreign currency to import petroleum, thereby contributing to stabilizing the macro-economy and controlling inflation.

Deputy Governor Dao Minh Tu said that keeping the exchange rate stable in 2022 is a very difficult task. If failure to keep the exchange rate will cause difficulties for import and export, difficulties to keep foreign currency capital in Vietnam, and loss of confidence of foreign investors, not to mention due debts.

Therefore, the State Bank of Vietnam has taken actions to adjust and expand the central exchange rate band for commercial banks to be more active in the issue of buying and selling foreign currency positions. At the same time, ensure that the USD/VND exchange rate moves up.

Considering a more flexible exchange rate

According to the analysis of experts of SSI Securities Company, the psychology of hoarding USD may have been relieved thanks to the high difference between deposit interest rates in VND and USD. Besides, the basic factors related to foreign currency supply also have many positive points, such as positive disbursement of foreign direct and indirect investment (FDI, FII), positive disbursement, surplus trade balance, or cash flow from newly disbursed foreign currency loans.

SSI expects the USD/VND exchange rate by the end of 2022 to be around the current range, equivalent to a devaluation of about 3.8% compared to the end of 2021.

Therefore, entering 2023, the State Bank said that it will operate cautiously and flexibly to stabilize the currency and foreign exchange markets and ensure the safety of the banking system; reasonable monetary regulation, operating interest rates and exchange rates in line with market conditions.

According to the December 2022 macroeconomic report of the World Bank (WB), experts recommend that, due to tightening global financial mobilization conditions and weak external demand, Vietnam's monetary management may consider allowing more exchange rate flexibility in response to external shocks. This policy can be supplemented by judicious use of the reference rate and prudent use of direct exchange rate intervention to protect foreign exchange reserves.

Sharing the same opinion, economic and financial expert Dr. Can Van Luc said that interest rates and exchange rates should be balanced. In 2023, it is possible to accept the dong depreciating a bit more, but it is necessary to consider raising interest rates very carefully, because in 2022, the SBV had to raise interest rates to control the exchange rate. If interest rates continue to rise sharply, businesses cannot stand it.