Vietnam is at early stage of a recovery cycle, unlike many countries whose capital is being withdrawn. This difference is the reason why Nguyen Xuan Binh said that the devaluation of the domestic currency similar to some countries will be difficult to happen in Vietnam.
Statistics from Central Bank News show that more than 20 meetings of central banks have been held in June. Ten of them decided to increase interest rates, the most important of which came from the United States Federal Reserve (Fed). Raising interest rates by 0.25 percent was what the market anticipated but the more certainty about the number of interest rate increases in 2018 at four times instead of three was quite surprising to investors.
Central banks of Hong Kong, Macau and four Middle East countries including Arab Saudi, the UAE, Bahrain and Jordan, simultaneously raised 25 basis points for operating rates.
Before the Federal Reserve raised interest rate, Turkey had just raised 1.25 percent, causing the interest rate of this country to swell 9.75 percent in just two weeks. The aforementioned move temporarily undermined the depreciation of the Lira but so far, the currency has still decreased 25.5 percent from the beginning of the year. A series of countries also raised interest rates such as India, Indonesia. Indonesian Rupiah has fallen significantly (over 5.6 percent) and only recovered from the middle of May after two decisions to increase interest rates of the central bank of this country.
Some countries have chosen to keep interest rates unchanged, such as the European Central Bank (ECB), Japan, but immediately after ECB’s decision to delay the quantitative easing plan till the end of the year, the euro quickly devalued compared to the US dollar. Since the beginning of the year, the euro has fallen 3.58 percent, but just less than three days of trading, this currency lessened 1.8 percent.
On the first trading day after two-week fluctuations of the international monetary market, the State Bank’s central exchange rate on June 18 only increased by seven dong/US dollar. Vietcombank kept the rates unchanged at 22,78522,855 per US dollar almost till the end of the day and only raised it by 10 dong/US dollar in the late afternoon. Some joint stock banks increased by 20 dong per US dollar. In contrast, the selling price of the US dollar in the free market increased quite sharply right from the early morning, to more than 23,000 dong.
Compared to the buying price listed at Vietcombank at the beginning of the year (22,735 dong/US dollar), the exchange rate at the bank currently rose 0.57 percent, the US dollar price in the free market improved 1.25 percent. The trend of the global monetary market along with the appreciation of the US dollar in the free market prompted the question about the future of the US dollar.
Nguyen Xuan Binh, Analysis director of KB Vietnam Securities Company, said that the similar devaluation of the domestic currency as in some countries is unlikely to happen in Vietnam or if it happens, it is not worth worrying.
“The biggest difference is that Vietnam’s economic cycle is at an early stage of a recovery cycle with low inflation, stable exchange rate and steady foreign investment flows while not so much capital was withdrawn”, said the KB analyst.
Other countries have experienced a relatively long recovery cycle and are experiencing macroeconomic instability. Thailand and Indonesia have been withdrawing capital quite heavily, putting pressure on exchange rate. Vietnam’s cycle is slower and is still relatively attractive to the attraction of foreign capital flow. The withdrawal of capital flows is temporary and short-term. Looking at the context and cycle of the economy, Binh said that Vietnam is still attractive and capital flows will continue to stay in at least 2-3 more years.
Two factors causing the US dollar exchange rate in the country, especially on the free market, to increase strongly, according to Binh, include objective factor of the US dollar in the world and the supply and demand of foreign currencies in the country.
Fed’s more certain decision to raise interest rates two more times was quite surprising to investors and caused US dollar to increase significantly against most currencies. Domestic demand for foreign currencies is not worrying about speculation demand thanks to the State Bank’s policy of exchange rate stabilisation over the last two years, but according to Binh, US dollar supply was not as strong as in the first months of the year. Import export trade surplus, foreign direct and indirect investment along with investment flows of foreign investors in the stock market have recently slowed down.
Bui Nguyen Khoa, head of the macro and market group of BIDV Securities JSC (BSC), said that the status of trade surplus, foreign direct investment, foreign indirect investment and remittances from the beginning of the year were factors that helped Vietnam have room to stabilise exchange rate over the last period.
The US dollar supply is well appreciated with foreign exchange reserves to continuously being accumulated and is estimated at about $63 billion in the first four months of 2018, equivalent to 3.6 months of imports.
Recently, the World Bank said Vietnam’s exchange rate was maintained relatively stable. This is more correct in the current context. US dollar appreciation has led many other currencies to depreciate. In Khoa’s opinion, although there are more tools for dong to stabilise, it will not be out of the question. “But the pressure on the exchange rate is not really big,” Khoa said.
Speaking about the reasons for the sharp increase of exchange rate today, he said, psychological factors also have a certain impact on exchange rate in the short term along with the general trend of the global. Unusual supply and demand at one point from a few hundred million US dollar contract of temporary purchase may also affect the market.
Recalling about the exchange rate increase several months ago, Khoa stressed that the exchange rate has quickly returned to normal after that. The regulation of exchange rates will depend on the maintenance of the status as well as the ability to have timely foreign currency supply.
Regarding the foreign capital flow in the stock market, the trend of net selling from developing market, marginal market is confirmed by the analyst from BSC. But Khoa said this is not a complete withdrawal. Foreign investors may restructure their portfolio, waiting for good opportunity to return in order to be pro-active with market volatility, but the capital withdrawal may occur if macroeconomic volatility is more complex in inflation, exchange rate indicators.
