Exchange rate in the first months of the year: stability in volatility

Suitable management

The most noticeable movement of the exchange rate in the first half of the year was the mixed contraction between the central rate announced by the SBV and the exchange rate at commercial banks. As of early June, the central rate has continuously peaked, surpassing 22,400 VND / USD, which is more than 1% higher than the central rate in early 2017, rising to more than 500 VND against the central rate first announced by the SBV in January 2016. At the same time, the exchange rates at commercial banks have kept stable, although they have increased sharply then decreased to around 22,740 VND / USD. Up to the beginning of June, the average exchange rate at commercial banks has decreased by 0.12% over the beginning of the year; the exchange rate in the free market has also decreased by 1.5% over the beginning of the year and currently closely close rates at commercial banks.

According to the State Bank, exchange rate movements and the foreign exchange market in the country have been stable. Deputy Governor of the SBV Nguyen Thi Hong said that the world market since the end of 2016 was fluctuated due to impacts from the economic and political situation in some big countries. However, the SBV closely monitored market movements and announced the appropriate exchange rate in line with the world market exchange rate, while ensuring that the monetary policy objectives of the Government and the country were proposed. Assembly has set out. As a result, the SBV continued to buy foreign currencies to increase foreign exchange reserves and all legal foreign currency requirements were met.

Further explanation on the issue, financial and banking expert, Doctor. Nguyen Tri Hieu said that the exchange rate fluctuations between the State Bank of Vietnam and commercial banks are due to the former exchange rate at a common level listed by the State Bank. The State Bank of Vietnam will increase this common level at a certain time, with a certain degree and big distance, when being adjusted; exchange rates at commercial banks will suffer from sudden increasing pressure. This causes of fluctuations of the exchange rate. The mechanism of the central exchange rate is adjusted flexibly daily; the exchange rates of commercial banks are also adjusted up and down with short amplitude daily, avoiding sudden shocks, which makes exchange rates stable.

It can be said that these are very positive results in the management of exchange rates of the State Bank, considering the domestic economic situation and economic and political situation of the world, the exchange rate has been suffering from much strong pressure. The lesson on the volatility of US politics with the US presidential election at the end of 2016 has caused the US dollar exchange rate shaking strongly. Exchange rates in banks in Vietnam also fluctuate strongly, but at the beginning of 2017, Although the world's exchange rate sharply decline, the USD Index (measured value of the value of the dollar with six major currencies) was up and down many times but the graph of price rate in Vietnam is still increasing regularly.

In terms of domestic economic situation, the biggest concern is the return of trade deficit. According to a report by the Ministry of Planning and Investment, in the first five months of 2017, Vietnam had a trade deficit of $ 2.7 billion, equivalent to 3.4% of the total import-export turnover, approximately equal to the goal of 3,5 % ratified by the National Assembly. In addition, the basic inflation of the 5-month average also increased by 1.56% compared to the same period in 2016 (1.62% in the first 4 months of 2016). This may exacerbate the supply of foreign currency, but according to experts, thanks to abundant foreign exchange reserves, reaching a record of more than $ 40 billion achieved by the SBV in 2016, the pressure has been significantly reduced.

The hidden pressure

Although the foreign exchange market in the country has positive results, creating a positive premise for the monetary policy management in the last months of 2017, experts are still worried about the pressure on the foreign exchange market a lot, even it tends to increase more strongly in the remaining 6 months of the year.

TS. Nguyen Tri Hieu forecasts, the exchange rate from now until the end of the year will continue to increase from 2-3%. According to Dr. Dinh Tuan Minh, CEO of MarketIntello, the exchange rate from now to the end of the year may increase by 1-1.5%. However, VND will not depreciate many thanks to the ability to successfully control inflation below 4% and abundant reserves of foreign exchange of the State Bank.

The cause of this surge is coming from many directions. The first is the pressure when The US Federal Reserve (FED) has left the possibility of continuing to raise interest rates several times in subsequent years and the goal of raising interest rates to 3% by the end of 2019. At the same time, if trade deficit on a large scale is not improved sharply, this will also have a strong impact on the supply of foreign currency; high demand will push up the exchange rate. Especially, the depreciation trend of the renminbi will have a big impact on the VND, the trade deficit between Vietnam and China is on the upward trend from $ 23.7 billion in 2013 to 28 billion.USD in 2016.

In addition, in the context that the Government is determined to keep its GDP growth target at 6.7% in 2017, the Prime Minister has asked the SBV to take the initiative in closely coordinating to run the monetary policy, fiscal, trade, investment ... to stabilize the macro, control inflation and lay the foundation for sustainable growth; It is not subjective in price management but it must be scientifically calculated reasonably, not causing inflation and promoting growth. According to Doctor. Nguyen Tri Hieu, the Government requests the SBV to ensure credit growth following plan (about 18%) in order to promote growth, which may cause an increase in inflation. In fact, in the first months of the year, inflation has increased. The increasing Inflation will push the VND down, which will push up the exchange rate. Therefore, if inflation can be successfully controlled below 4%, along with the abundant foreign exchange reserves of the SBV, Doctor. Dinh Tuan Minh supposed that the VND will not devalue much.

After all, with the stable exchange rate management at the moment, the SBV is actively contributing to macroeconomic growth. However, any growth has to accept certain devaluation, but experts suppose that this is the depreciation of VND to support growth. Therefore, a reasonable management will be what people and businesses want the State Bank to find out to stabilize the economy and promote production and business.