After a relatively stable period since the beginning of the year, the domestic exchange rate has suddenly risen in recent days. In four days from 6 to 9 May, US dollar price in banks increased by about 130-150 dong, then cooled down at the end of the week. This week, US dollar climbed strongly in two days 13 and 14 May and started showing signs of deep decline on May 15 with a decrease of about 60 dong per US dollar.
Pham Hong Hai, general director of HSBC Vietnam, said that the recent sudden changes in exchange rates came from both inside and outside.
In the domestic market, the banks expected a large amount of indirect investment into the market, however, this transaction did not occur in the previous week. Meanwhile, banks had sold US dollar in advance to the State Bank of Vietnam (SBV) to keep a negative position, expecting that after the flow of indirect investment, it would buy US dollar at low prices.
As for external causes, HSBC CEO said that although the trade conflict between the United State and China did not affect the supply and demand of foreign currency of Vietnam, it affected the market sentiment. Besides, the Chinese yuan and many other currencies had also depreciated sharply. The general sentiment of the market was when there were uncertainties, most of them would seek shelter and the US dollar was still a more secure channel.
Although the domestic exchange rate, especially on the banking market, has been constantly fluctuating in recent days, it can be seen clearly that the SBV’s “calmness” through adjusting its central exchange rate. Accordingly, different from the strong increase of tens of dong/ day in the volatility in the end of December 2018, the central exchange rate in recent days only increased slightly by 5-10 VND/ day or even down sessions interleaving.
Although the central exchange rate did not increase strongly, in this period of fluctuation, US dollar in banking system has not appreciated. And even on 9 May, when the bank exchange rate increased the most (9/5), the US dollar selling price in Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank) was also lower than the allowed ceiling of 293 dong, equivalent to 1.2%.
To get this “safe” buffer zone, from the beginning of the year, the authorities have continuously adjusted the central exchange rate even though the bank exchange rate is stable. This adjustment is considered by Bao Viet Securities as a welcome step, creating a “buffer zone” for the official exchange rate in case of unexpected fluctuations.
And in fact, in a recent exchange, deputy director of the Money Policy DepartmentNguyen Tu Anh also said that the adjustment of the central exchange rate was to expand the amplitude for volatile markets.
With a higher ceiling price, a larger trading band, banks can completely change the exchange rate more flexibly according to the movements of foreign currency supply and demand and contribute to relieve market sentiment.
Not only creating a relatively large “buffer zone”, SBV’s exchange rate operation is also being supported when Vietnam’s foreign exchange reserves are at a record high. According to the information announced by SBV, on April 17, the agency bought $8.35 billion from credit institutions.
With this advantage, SBV is fully capable of intervening when there are abnormal fluctuations.
