The official exchange rate via the banking channel in recent weeks has been usually higher than 40-60 dong compared to the free market.
At the beginning of May 8, commercial banks listed the popular selling price of US dollar at 23,400-23,420 dong, while in the free market, the transaction points on Ha Trung Street (Hanoi) only sold at the threshold of 23,360-23,370 dong. This situation also occurred from the beginning of the week with the difference between the official channel and the free channel from 40 to 60 dong.
The fact that banks pushed the selling prices of US dollar higher than the free market, according to some experts, resulted from the fact that banks had sold large amount of foreign currency to the State Bank of Vietnam (SBV), so that the supply in the market was temporarily no longer as abundant as before.
At the Banking Overview Forum on May 8 in Hanoi, Pham Hong Hai, general director of HSBC Vietnam, shared about the recent exchange rate fluctuations. He said that some banks were having negative foreign currency position because they previously sold too much US dollar to the executives.
“Many banks have recently expected an influx of indirect investment into the market, creating opportunities to buy cheap foreign currencies. However, this transaction has not yet happened but these banks have sold foreign currencies to SBV, causing a negative position of the foreign currencies, ” Hai said. This movement made the supply of foreign currencies in the market not as abundant as before, while many banks had to actively buy in order to balance the position.
In the newly published report, Bao Viet Securities Company (BVSC) also mentioned this issue as one of the causes affecting the recent exchange rate. According to BVSC, as of April 18, SBV bought a net amount of $8.35 billion to ensure foreign exchange reserves.
“The attraction of a large amount of foreign currencies also put pressure on the USD/VND exchange rate,” BVSC said.
Sharing more about the movement of the recent exchange rate, HSBC Vietnam general director said that the main reason was still the psychological factors of the market. The Chinese yuan was devalued against the US dollar, along with new developments in the US-China trade war that had affected investor sentiment.
“If it is said that Trump’s tweet affects Vietnam’s demand and supply of foreign currency, it is not right. The escalating trade tension has affected the market sentiment,” Hai said.
However, according to Hai, in the medium and long-term, the exchange rate will not fluctuate too dramatically except in the case of special events such as booming trade war or interrupted foreign capital inflow in Vietnam. HSBC’s general director shared that the dong might fall by 2-3 percent compared to the US dollar this year, fluctuating in a similar manner compared to previous years according to the authorities’ target.
Sharing the same view with Hai, economist Vo Tri Thanh also said that the recent volatile exchange rate was only an internal factor, looking beyond 2019, the volatility might be only about two percent.
BVSC, in the new report, also stated that it still maintained the view that the exchange rate in 2019 would be stable with a devaluation of less than two percent when Vietnam’s foreign exchange reserves were at a high level and SBV had the ability to adjust the exchange rate in case of unexpected fluctuations.
“The central exchange rate will continue to be slightly adjusted by SBV in order to create a ‘gap’ in case of unexpected fluctuations. Meanwhile, the exchange rate of banks is expected to remain flat, fluctuating in a narrow range due to the good supply of foreign currencies from FDI and FII capital, “BVSC said.
