Both exchange rates and exchange rates at commercial banks increased slightly in the first quarter. However, BVSC believes that the exchange rate is not a big risk for Vietnam economy this year, it is forecasted to increase by 1-2 percent.
According to Bao Viet Securities Company (BVSC), the USD/VND exchange rate in the first quarter tended to increase slightly for both the central rate and the exchange rate at commercial banks. Specifically, compared with the end of 2017, the central rate announced by the State Bank at the end of March increased by 33 dong, equivalent to about 0.15 percent. Meanwhile, the exchange rate at commercial banks increased sharply (by 96 dong, equivalent to 0.42 percent). Exchange rate movements mainly occurred in March.
There are two major causes for the USD/ VND exchange rate to increase in the last quarter.
Firstly, in February, the USD Index increased from 88.59 points on February 15 to 90.61 points on February 28 (equivalent to 2.2 percent). In this respect, in the first quarter, although foreign capital inflows continued to flow into Vietnam, the supply of dollars increased. The SBV quickly bought foreign currency. This move targets two goals, including (1) to improve the foreign exchange reserves and (2) to keep the dong not overvalued against the US dollar, causing Vietnam’s exports to be disadvantaged.
Secondly, considering the subjective factors, Vietnam’s balance of payments in the first quarter was still positive thanks to the surplus of the trade balance (trade surplus of $ 1.3 billion) and the FDI inflows USD 3.88 billion), remittances still flowing to the Vietnamese market. This has helped the USD supply abundant in the market. However, the quick purchase of foreign currency by the State Bank has made the actual supply of foreign currency in the market not too abundant. In addition, inflation tends to rise above expectation in the first two months of the year, which is also a reason to push up short-term psychology and short-term investment.
The risk is not great
BVSC thinks that because the dollar is still in the downward trend, there is not too much risk for the exchange rate this year.
According to experts, NEER and real effective exchange rate (REER) are quite safe, implying that the pressure on VND devaluation is not high this year. Compared with the currencies of some countries in the region with the export competition with Vietnam such as China or Thailand, the Dong is in a better position in terms of export support (in particular, VND down 3 percent against CNY and 3.5 percent for THB in Q1).
In the coming quarters, if the US dollar reacts more positively to the FED’s interest rate increase plan, the dong may rise again against the currencies of countries competing for exports with Vietnam. However, this increase will not be large enough to put pressure on the State Bank to adjust the exchange rate.
In addition, in the case of greater than expected pressure, the SBV can also use the foreign exchange reserves (which have been much improved recently) to stabilise the exchange rate. BVSC’s forecast that the exchange rate is not a big risk for Vietnam’s economy this year, it is likely that the USD/ VND exchange rate will increase 1-2 percent for the whole of 2018.
