The strategic report published by RongViet Securities Corporation (VDSC) in May has very new judgments about the foreign exchange market in general and the exchange rates in particular.
According to the analysis, since the beginning of the year, the pressure on emerging and developing currencies is generally not large. The USD/VND exchange rate was almost unchanged while some other currencies such as Chinese yuan increased in value compared to US dollar, and the foreign exchange market actually had a strange “peace”.
However, that peace is not synonymous with the safety. In Vietnam, the State Bank of Vietnam (SBV) is trying to buy foreign currencies to increase foreign exchange reserves after the period of “fund discharge” at the end of last year. According to the announcement, SBV has bought $8.5 billion in the first four months of the year and raised foreign exchange reserves to over $65 billion. This may be the most impressive net buying figure ever made in a short time.
The analysis shows that the increase in the foreign exchange reserve scale by the operator in Vietnam is relatively lower than other countries in the region. Since the Asian financial crisis in1997 and 1998, Southeast Asian countries understood the role and boosted foreign exchange reserves. They consider it as a shield to help maintain macro stability when integrating with the world. And it is clear that Vietnam has done so well in recent years.
VDSC also thinks that caution is necessary when the current stability is still quite fragile. It needs to pay attention to three warning factors. Firstly, the US dollar index, measuring the dollar strength, is around the peak thanks to better United States economic data relative to expectations and to the rest of the world. Secondly, President Trump’s government recently announced a new tariff hike from 10 percent to 25 percent on $200 billion of Chinese imports. Trade negotiations are still ongoing and any rift can make the market more volatile. Finally, Vietnam’s trade surplus is falling sharply when import demand increases faster than export revenue. Beside machinery and equipment to serve big projects, the import of consumer goods, especially automobiles and components, suddenly increased, along with crude oil and coal.
The report also notes that in the context of a large amount of dong poured into the economy, SBV continuously withdrew via Open Market Operations (OMO) and the State Treasury (ST) and boosted bond issuance right at the beginning of the year. These contributed to controlling the cash flow of the system. With the plan of mobilising 80 trillion dong in the second quarter, it is likely that the ST will absorb nearly 150 trillion dong through government Bonds in the first half of 2019.
From here, the story of a lot of mobilisation but low disbursement is still a problem. The disbursement rate of public investment is still slow, only reaching over 15 percent of the plan in Q1/2019. The amount of deposits of the ST at the commercial banking system continues to be used as a tool to regulate market liquidity. It increased in Q4/2018 and suddenly decreased in Q1/2019. Disbursement of public investment may increase from Q3 when large infrastructure projects come into construction and the National Assembly approves the revised Law on Public Investment in the parliamentary session at the end of May.
