In recent sessions, both central rate and US dollar (USD) prices at banks have been raised fairly strongly.
While the central rate in the morning of March 1st was increased by up to 15 dong, reaching a record high level of 22,463 dong per USD, the highest selling rate of USD at banks officially hit 22,795 dong per USD.
Compared to the first working day after the Tet holiday (February 21st), the central reference rate has risen by up to 20 dong, equivalent to 0.18 percent while the exchange rate at Vietcombank also increased from 22,665-22,725 dong to 22,715-22,785 dong per USD at the current time, up by 50 dong in both selling and buying rates, equivalent to an 0.1 percent increase in only five working days.
Meanwhile, on the global market, the USD also recorded a record rise in more than two weeks after the first testimony before the Congress of Chair of the US Federal Reserve (Fed) Jerome Powell. The head of the Fed said that he supports the gradual normalisation of monetary policy, and that the US economy is growing positively and there is less risk of recession.
Currency market, securities market, and global debts are also shaken by the concerns about the rise of US inflation and this may prompts the Fed to raise interest rates more than three times this year as expected. This is forecasted to also put pressure on the dong.
Numerous factors push up exchange rate.
Talking to reporter of BizLIVE, banking and finance expert Dr Nguyen Tri Hieu said that in recent sessions, domestic exchange rate has been affected by both internal and external factors. “External factors include the Fed’s messages to continue increasing interest rates this year, which even made the stock market to response by a decline. If the USD interest rates increase, the USD value will appreciate and put pressure on exchange rate. Other factors include uncertainties in the international arena, which can create crisis that push the value of USD up thereby increasing exchange rate”, said Dr Hieu.
Concerning the internal factors of the economy, Dr Hieu believed that further application of USD at 0 percent per annum is also a pressure to exchange rate rise.
According to Dr Hieu, not paying interests to USD deposits is in line with anti-dollarisation policy, but it, on the other hand, puts pressure on the exchange rate because banks face many difficulties in mobilising USD”.
Meanwhile, import is an important step in the development of the economy. The larger the imports, the demand for foreign currencies will also increase, not to mention the rising public debt repayment in foreign currency as the government every year needs a huge amount of foreign currency to repay foreign debts. The large foreign currency demand while supply is limit puts more pressure on exchange rate.
Previously, since late 2015, after the State Bank of Vietnam (SBV) announced the decision to lower the USD deposit rate to 0 percent per annum for individuals, after applying similar measures to businesses nearly three months before.
This move of the operator was considered to reduce the pressure on exchange rate in the context when the USD/VND continuously recorded strong fluctuations as the Fed decided to raise interest rates.
However, many experts said that the macroeconomic situation has become stable again and the 0 percent USD deposit rate has fulfilled the mission and is no longer suitable in the new situation. Accordingly, the USD interest rates should be raised to mobilise resources in the population, instead of borrowing foreign currency at high interest rates to meet the higher and higher demand for foreign currency in the domestic.
Will inflation rise?
Both theory and practice have proved the close relation between inflation and exchange rate. Therefore, the fluctuation of the exchange rate will lead to the fluctuation of inflation.
The recent exchange rate hike in the recent time is likely to have certain impacts on inflation.
According to Dr Hieu, when the exchange rate increases and makes the prices of imported goods to rise, the price level of goods in the country or the Consumer Price Index (CPI) will increase. In addition, since some imported goods are input materials of some business and production units, the prices of these imported goods will also increase.
Under the plan, the inflation in 2018 is expected to be controlled at 4 percent. According to experts, this plan is feasible, but with unpredictable fluctuations on both domestic and international markets, policymakers will need more flexible guidance and management.
