Nguyen Hoang Minh, deputy director of the State Bank, HCM City Branch, said that the Lunar New Year is the time when the volume of money that overseas Vietnamese send to relatives in Vietnam increase. Overseas remittances flew strongly to Vietnam last year and are forecasted to continue growing this year.
In 2018, remittances to HCM City were estimated to reach $5 billion as initially expected. This shows that the overseas remittance flowing into Vietnam still grows in a positive direction, despite the context that the investment capital flow tends to flow out of emerging economies after a continuous move to increase USD dollar interest rate of the Federal Reserve (Fed) in the past year and many other economies also tend to tighten monetary policy.
Notably, the interest rate of US dollar deposits in Vietnam has been nil for a long time, but remittances continue to pour in, showing the confidence of overseas Vietnamese with the domestic economy.
In recent years, remittances to HCM City have increased by 10 percent per year on average. Remittances often depend on macroeconomic conditions, the situation of overseas workers, services to attract remittances, etc.
In 2018, the situation was very positive, overseas remittances were sent home very stably and steadily increased. In addition, over the recent time, Vietnam’s macroeconomic were stable, and pressure of exchange rate increase due to market sentiment were somewhat removed, so recipients of remittances gradually convert from holding foreign currencies to holding dong instead of make saving in US dollar as before. The reason is that the interest rate of savings deposit in US dollar applied by banks is only zero, while the interest rate of dong savings deposit tends to increase.
In the past three years, the amount of remittances transferred to HCM City reached about five billion dong per year. The field attracted the largest amount of overseas remittance was production and business, accounting for 60-65 percent of the total overseas remittance to HCM City.
Besides, real estate also attracted a large amount of remittances; up to 21 percent of the cash flew into real estate, averaging over $1 billion per year. It can be said that remittances are contributing a positive source of capital for developing real estate business. According to Minh, this is a great support for businesses and investors to develop real estate, contributing positively to economic development in HCM City in particular and the country in general.
The State Bank, HCM City branch is cooperating with HCM City People’s Committee to assess the situation of overseas remittances in order to direct this money into key economic programmes of the City in the coming years.
Exchange rate in 2019 was assessed as less pressure when Fed delivered the message to relax the roadmap to raise interest rates. How will that affect the overseas remittance source in 2019?
Fed is expected to raise policy rates at least twice more in 2019, after four adjustments from the beginning of 2018, a 25 basis point increase each time. Fed’s rate hike schedule is relaxed and less, which means that the greenback is not actively supported. Pressure from external factors on the exchange rate of Vietnam is reduced.
In fact, under the pressure of increasing interest rates of Fed and US dollar continues to rise, recently, overseas remittances source have still flown strongly to Vietnam. The dong/US dollar exchange rate is controlled flexibly and stably, although Fed continues its roadmap of US dollar interest rate hike.
The months close to the Lunar New Year are always the peak season of remittances flowing strongly to the country, so the forecasted remittances into HCM City in particular and the country in general will continue to increase strongly. In addition to the contribution of more than 4.5 million overseas Vietnamese worldwide, the labour export market have also helped the overseas remittance source to grow strongly in the past time and will continue to be the segment to boost overseas remittance growth in the near future.
