Import and export turnover no longer depends on the exchange rate

Dr. Nguyen Duc Do, Deputy Director of the Institute of Economics and Finance, Academy of Finance.

Deposit interest rates in recent months have been continuously increased by banks, in your opinion, how will lending interest rates be affected?

In recent months, deposit interest rates have been on a strong upward trend because banks need to mobilize capital to meet liquidity. Therefore, in the context that the demand for loans from people and businesses is still high but the credit growth limit (room) is limited, lending interest rates will definitely be affected.

However, the increase in lending rates will not be at the same pace as deposit rates.

Moreover, the State Bank of Vietnam (SBV) will have solutions to control and stabilize interest rates, giving priority to interest rates for businesses in priority fields as prescribed by the Government.

Inflation is still high in many major economies, how will this affect the SBV's interest rate management, sir?

In the first half of 2022, inflation in Vietnam and many other countries was affected by the sharp increase in energy prices. However, international inflation is likely to have peaked, so the remaining months of 2022 will not have much impact on domestic inflation. In addition, the prices of food, foodstuffs, raw materials prices, energy prices, etc. in Vietnam are stable thanks to the proactive supply, so both avoid inflation and do not have a supply chain disruption like in a number of countries.

Therefore, up to this point, the target of controlling inflation in 2022 at below 4% will certainly be achieved. In Vietnam, controlling inflation is the root of macroeconomic stability and maintaining the value of the currency. If the inflation pressure is not much, the operating interest rate may no longer increase.

In the context of rising interest rates, how do you assess the issue of exchange rate management, especially when Vietnam needs to expand import and export activities?

Since 2016, Vietnam has operated the exchange rate based on the fluctuations of a basket of currencies. Therefore, the exchange rate between VND and USD moves in the same direction as the USD Index, but with a narrower band. This way of operating helps Vietnam's foreign exchange rate to be stable in the short term, but not lose its flexibility in the long term.

Over many years, the VND/USD exchange rate has only fluctuated around 1-2%/year, but in the first nine months of 2022, the USD Index has increased quite strongly, the VND/USD exchange rate has also increased by 3-4 %.

However, the import and export situation of Vietnam since the beginning of the year has been very good. The whole country still had a trade surplus of US$6.52 billion in the first 9 months of 2022 although many currencies in the world depreciated sharply.

Obviously, import-export turnover in Vietnam no longer depends as much on the exchange rate as before, but thanks to the production and business capacity of enterprises, as well as thanks to the global aggregate demand, the aggregate demand is still strong, and export is still good.

But with the macroeconomy, low inflation and stable exchange rate will encourage domestic and foreign capital flows to invest in production and business activities to achieve high growth.

In the context that inflation control is feasible, the SBV may prioritize exchange rate stability more. Because when intervening in the foreign exchange market, the biggest difficulty is not the lack of foreign currency or the reduction of foreign exchange reserves, but the solution for the SBV to collect VND and raise interest rates.

Therefore, when VND deposit interest rates increase, people and businesses will reduce their foreign currency hoarding, making intervention in the foreign exchange market more convenient. Therefore, the SBV's move to increase the operating interest rate at the end of September has more meaning to stabilizing the foreign exchange market.

In your opinion, how will the management of interest rates and exchange rates of the State Bank be?

Currently, the SBV has to take care of many goals such as controlling inflation, supporting growth, stabilizing exchange rates, and ensuring liquidity and safety of the banking system.

Regarding exchange rate management, the movement of the exchange rate in Vietnam will continue to depend on the strength of the USD in the international market and the inflation situation.

So if the exchange rate fluctuates strongly, the SBV may intervene strongly so that the USD price this year does not exceed VND24,000/USD. However, the reality shows that Vietnam still has many advantages to stabilize the exchange rate, such as a high trade surplus, large foreign exchange reserves and remittances, and disbursement of foreign investment capital (FDI) as well.

Moreover, thanks to the stable currency value for many years, the confidence of people and businesses in VND is quite high, there is no phenomenon of investment, "dollarization" causing disturbances to the foreign market.

In 2023, the management of exchange rates and interest rates may be more favorable than this year because of the inflation situation, the strength of the dollar in the world market may have peaked, helping central banks to reduce the frequency of interest rates will increase, the pressure on the domestic money market will be lower, the State Bank will reduce the value of USD, promote buying in USD, helping the exchange rate and interest rate market to stabilize again.