In the additional report assessing the results of monetary policy and banking operation management in 2018 and the first months of 2019 sent to the plenary session of the National Assembly Economic Committee on April 25 in Nha Trang, the State Bank of Vietnam (SBV) said, accumulating from the beginning of the year to April 17, 2019, it had bought $8.35 billion to supplement the state foreign exchange reserve.
That is positive news for the economy right before the holiday season. It is even more meaningful in the uncertain global economic context which has been warned by many experts before entering 2019.
Following the global economic slowdown, trade conflicts between the US and many major economies such as China, EU will have adverse impacts on Vietnam’s economy. Specifically, exchange rate will certainly be under pressure because this is a very sensitive field with fluctuations from economic developments and the global financial market.
These concerns are not unfounded as the Fed’s continuous increase in interest rates has supported the dollar to rise sharply in 2018, and the US-China trade war has caused capital flows to reverse, flowing out from developing Asian economies, pushing the currencies of these economies to drop dramatically. In order to stop the fall of the domestic currency, many economies in the region have been forced to increase interest rates, or sell US dollar to intervene.
However, contrary to the above concerns, the domestic foreign exchange market in the first months of the year continued to extend a series of stable days of 2018. SBV has continuously adjusted the central exchange rate (it has increased by about 200 dong per US dollar compared to the end of 2018, equivalent to the increase of 0.89 percent. According to experts, this movement of SBV is mainly to bring the central exchange rate closer to the market rate after being anchored at a relatively low level in 2018.
While exchange rates in banks are generally quite stable. The buying and selling price of US dollar at banks increased slightly in the few days immediately before the holiday period mainly to prevent risks. Even so, with the purchase price in the range 23,20023,230 dong per US dollar and sold in about 23,32023,340 VND/USD. Currently, the exchange rate at banks is only 80 VND/USD higher than the end of 2018, equivalent to an increase of 0.3 percent.
That was partly thanks to the abundant supply of foreign currency in the economy when the trade balance was more than $620 million since the beginning of the year; while disbursed Foreign Direct Investment amounted to $5.7 billion; capital inflows through capital contribution and share purchase also reached $5.68 billion and the source of remittances, income from tourism activities. Abundant foreign currency supply, plus exchange rate and stable market have created opportunities for SBV to continue buying $8.35 billion to supplement the national foreign exchange reserves.
Although no specific figures were published, according to some experts, Vietnam’s foreign exchange reserves have increased to approximately $70 billiona new record number. It is a safety buffer for the economy to resist external shocks. Foreign exchange market, stable exchange rate and high foreign exchange reserves have contributed to maintaining macroeconomic stability.
Higher foreign exchange reserves also enhance Vietnam’s reputation and position in the eyes of international investors. The fact that global credit rating agencies such as Moodys and Fitch Ratings continuously improve credit ratings for Vietnam in 2018. Most recently, S&P has upgraded its credit rating for Vietnam for the first time after nine years, which is a clear evidence that Vietnam’s reputation is getting more and more advanced in the international arena.
Another evidence shows the confidence of foreign investors in the stability of Vietnam’s economy, on the stability of the exchange rate that foreign investment inflows still increase strongly even through direct or indirectly channels, while many other economies in the region are staring at this flow of capital.
The confidence of the market, especially foreign investors in turn, has become a positive support factor to help SBV stabilise the foreign exchange market and exchange rate. However, experience from regional economies shows that this belief is only possible if the macro economy continues to be stable. Therefore, controlling inflation, stabilising macro economy is still the goal throughout the current administration.
