Many successful capital sales to foreign investors have brought about huge cash flows to foreign exchange market, helping to raise the national foreign currency reserves to a record level and the State Bank can be more favourable in curbing exchange rate in 2018.
*Equitisation is supporting exchange rate
Since the end of February, the State Bank has many times adjusted up central exchange rate with rather strong increase. However, exchange rate in the market almost remained unchanged. According to experts, this is thanks to quite plentiful foreign currency supply in the market.
Nguyen Duc Hung Linh, director of Analysis and Investment Consultancy for Individual Customers at Saigon Securities Inc. (SSI) said the strengthening of equitisation and divestment from state-owned businesses has brought about huge amount of foreign currency.
Specifically, foreign investment in the form of capital contribution and share purchase increased sharply (up 45 percent year-on-year), reaching $6.2 billion in 2017. In the first two months of 2018, this figure continued to surge (up 102.5 percent), touching $1.25 billion. Most notably, the sale of Sabeco shares at the end of 2017 helped the state budget earned 110 trillion dong, equal to $4.8 billion, creating a significant supply of foreign currency to the market.
In this regard, deputy Governor Nguyen Thi Hong also affirmed that the plan to sell capital to foreigners of some credit organisations and state-owned businesses are actively supporting exchange rate.
Apart from equitisation and some capital sales, the foreign exchange market and exchange rate are also experiencing many advantages thanks to trade surplus, FDI disbursement as well as strong increase in registered capital. Only in the first two months of the year, FDI disbursement touched $1.7 billion. The trade balance in the first two months of the year also had a surplus of $1.08 billion. Besides, remittances to Vietnam recovered strongly in 2017 after a year of decline, hitting the record level of $13.81 billion, up 16 percent and brought Vietnam into top 10 countries having the largest remittances in the world.
“Abundant foreign currency and stable exchange rate continued to facilitate the State Bank to purchase foreign currency, and strengthen the foreign currency reserves. The fast increase of foreign currency have increased quickly from $41 billion at the end of 2016 to nearly $60 billion as of the end of February 2018, equal to three months (more than 13 weeks of import), higher than the minimum recommended level of the International Monetary Fund (IMF)”, said Linh.
*Exchange rate may still increase two percent
Commenting about the slight increase of exchange rate after the Lunar New Year, Dr Can Van Luc, economic expert said this is a normal thing as businesses have resumed business operations after the holiday. “The strongest impact on exchange rate this year is that the U.S Federal Reserve (Fed) is forecasted to raise interest rates at least four times. The first time may be right at the end of March 2018. Fed’s interest rate increase will cause US dollar price to edge up on international market, thereby affecting domestic exchange rate. However, the whole year exchange rate will fluctuate at no more than two percent”, said Luc.
This is also the exchange rate fluctuation forecasted by the National Financial Supervisory Commission (NFSC).
According to State Bank Governor Nguyen Thi Hong, in 2018, exchange rate and foreign currency market may suffer from pressure from the possibility that trade surplus may shift to a deficit, and the US dollar interest rate in the world (especially the US) increases; the central bank of many countries such as Europe, Japan, etc. has issued a roadmap to gradually narrow monetary loosening policy.
However, the deputy Governor of the State Bank believes that the domestic market will continue to be supported by foreign capital flows (FDI, FII, remittances, etc.) thanks to stable macroeconomic conditions, high growth rate compared to the world, continuously improving business environment and the strengthening of equitisation process.
Since 2017, the State Bank has strongly pumped dong into the market to attract foreign currency (only in the first two months of this year, the State Bank poured 70 trillion dong to the market to purchase foreign currency) but still does not cause inflation. This is because the State Bank has skilfully selected time and offered many solutions to neutralise the amount of money, while helping to create abundant liquidity of dong in the system.
A new interesting point is that recently, the State Bank has actively announced the foreign currency reserves but no longer keeps it as a secret as before. This shows that the State Bank has confidence in foreign currency reserves while also showing its ability to ensure the national financial safety and liquidity, as well as enhancing investors’ confidence.
