The 23,175 dong per US dollar price had been listed by the SBV Operations centre for a long time. On the Open Market Operations (OMO), when the supply of foreign currencies is large, the transaction prices among market members decrease to the above level, or even lower, they will register to resell to the SBV to avoid having to sell at lower prices.
The SBV is the last buyer and seller, when the US dollar price falls to a defined low threshold, or “floor price” as called by foreign currency traders. Certainly, the repurchase is considered for the members with positive foreign currency, to limit bearish speculation.
In that direction, if there is no action by the operator to block buying, the US dollar/dong exchange rate may fall even deeper. And thus, the dong appreciates, which is, to some extent, unfavourable for exports.
In the last week, in some sessions, the spot US dollar price on the OMO market was recorded below 23,175 dong per US dollar. Those were also the sessions that the SBV bought in. According to BizLIVE, in the last week, nine banks resold foreign currencies.
In the first session of this week, market members continued to record a large amount of resale. The total amount purchased by the SBV may reach around 1.8 billion US dollars from the last week until early this week.
In April 2020, at the online meeting between the government and localities, SBV’s Governor Le Minh Hung said that the national foreign exchange reserves reached a new record high level of above 84 billion US dollars. With the current net buying trend, this source of capital can be expected to reach 90 billion US dollars in the future.
The foreign currency repurchases of the SBV are in line with market developments in the recent time.
After the US Federal Reserve (Fed) had cuts and brought the interest rate to nearly zero percent per annum, the dong interest rate saw a big difference. This has further stimulated the foreign currency conversion in the economy, when interests are balanced.
Meanwhile, Vietnam has continued to see trade surplus with a gradually increasing scale over the months from the beginning of the year until now.
In just the past month, the US dollar has continuously decreased by about seven to eight percent, the US dollar Index has fallen to just around 93 points from 100 points, etc.
However, the most concerned point at the present is that with the purchase of foreign currency at the above scale, it means that more than 40 trillion dong have been supplied to the market.
In 2019, when continuously buying a large amount of foreign currencies, the SBV immediately issued bills to partially withdraw the supplied dong, neutralising the impacts, especially for inflation. However, this move is yet to be recorded.
Perhaps the operator is actively loosening with control the capital source to create conditions for capital to penetrate into the market, in the context when there is a need to further create conditions for soft interest rates, supporting the economy and businesses hit by the Covid-19 epidemic.
Meanwhile, with the second wave of this epidemic, it is expected that the aggregate demand of the economy has been affected and reduced the pressure on inflation. The money supply, therefore, is also under less pressure. Certainly, these expectations are short term, while the impact of Covid-19 and the disease control are still ahead.
The aforementioned new and large capital flow can be considered a signal of “controlled easing” of the SBV. It is also consistent with the general trend in the world, when other central banks have also eased and injected capital at a large scale to support their economies.
In addition, as mentioned above, the SBV continues to further enhance the strength of the national foreign exchange reserves a more and more valuable source in the context when the world is encountering many uncertainties and challenges during the Covid-19 epidemic, trade conflicts, etc.
