Keeping the exchange rate stable to control inflation and lower interest rates

VCN - In an interview with Customs News, Dr. Nguyen Duc Do, Deputy Director of the Institute of Economics and Finance, Academy of Finance, said that with the gradual reduction of inflation pressure, the world USD index in a downward trend will help the domestic foreign exchange rate become more stable and reduce the influence on interest rate management.
Failure to keep the exchange rate will cause difficulties for import and export Failure to keep the exchange rate will cause difficulties for import and export
Exchange rate is no longer a concern Exchange rate is no longer a concern
Not just exchange rates, businesses are concerned about interest rates and liquidity Not just exchange rates, businesses are concerned about interest rates and liquidity
Dr. Nguyen Duc Do
Dr. Nguyen Duc Do

What do you think about the impact of exchange rate movements on inflation in 2023?

Inflation pressure in Vietnam in 2023 will not be too great. Specifically, due to the steady increase in core inflationary pressure from mid-2022, the State Bank (SBV) has proactively implemented a prudent monetary policy in the second half of 2022.

According to data from the General Statistics Office, the money supply did not increase in the second half of 2022, and at the same time, the interest rate level in 2022 has increased by about 2-2.5 percentage points compared to 2021. These will be influential factors to curb inflation in 2023.

In particular, the pressure on the exchange rate has also decreased significantly since the end of 2022. In the international market, it is likely that the USD index has peaked in September 2022 and is in a downtrend, although there will be periods of recovery in 2023. In the domestic market, the USD price has also dropped sharply since December 2022. From the end of 2021 to the end of 2022, VND only depreciated about 3.7% compared to the USD. This is a slight devaluation and therefore will not have a strong influence on inflation.

If the downtrend of the USD continues, the USD/VND exchange rate in 2023 will be kept stable by the SBV to control inflation and lower interest rates to support economic growth. Thus, the pressure on inflation from variables such as currency, exchange rate or the price of fuel and raw materials is likely to have peaked in 2022 and will decrease in 2023.

How will the stable domestic foreign exchange rate affect the macro economy, sir?

Obviously, keeping the exchange rate stable will reduce people's incentive to hoard foreign currency, the amount of foreign currency sold will decrease, creating conditions for the State Bank to buy in for reserves, helping to increase the money supply, thereby reducing pressure to increase interest rates. Moreover, the increase in inflation is less affected, which will help prices and the domestic market to be stable, the cost of raw materials and production accessories will fluctuate slightly, creating conditions for businesses and the economy to recover and develop.

In particular, foreign exchange rate movements often have a strong impact on import and export activities. Vietnam's economic growth model has so far relied heavily on capital and export markets. Once the world economy has strong fluctuations, Vietnam's economy also fluctuates. But as in 2022, the USD Index has increased quite strongly, and the VND/USD exchange rate has also increased by 3-4%, but Vietnam's import and export situation since the beginning of the year has been good, still maintaining a trade surplus although many currencies in the world depreciated sharply.

This shows that Vietnam's import and export turnover does not depend on the exchange rate but depends more on the aggregate demand from the world economy.

Therefore, the development of import and export markets, promotion of business capacity improvement and product and goods quality are essential to maintain sustainable import and export activities.

With the above issues, in your opinion, what should be considered on exchange rate management?

Vietnam is a highly open economy in terms of trade, but the level of financial openness is still low. This is a condition for Vietnam to control both interest and exchange rates to some extent without floating like some other countries. Moreover, the pressure on inflation decreases the room for the SBV to loosen monetary policy to support the economy.

However, Vietnam has many advantages to stabilize the exchange rate, such as high trade surplus, large foreign exchange reserves and remittances, foreign direct investment (FDI) disbursement are positive.

The monetary and financial management agencies have stabilized the macroeconomy, and at the same time taken measures to support the economy, helping people and businesses reduce financial costs while maintaining access to capital in difficult times.

Policy rate hike unavoidable to curb exchange rate, inflation risks Policy rate hike unavoidable to curb exchange rate, inflation risks

In order to maintain financial and monetary stability, besides being proactive, flexible as well as ready to intervene, it is equally important that the management agency's maintain consistency towards the goal of macro stability.

Thank you Sir!

By Huong Diu/ Huu Tuc

Related News

"Good oppotunities" for export to Asia - Africa markets

"Good oppotunities" for export to Asia - Africa markets

VCN - The Asia-Africa region is always an important market for Vietnam. These are two markets considered suitable for Vietnamese goods, including the Red River Delta, to expand their market share in the near future.
Another six months for debt restructuring but need to manage bad debt risks

Another six months for debt restructuring but need to manage bad debt risks

VCN - The decision to continue extending the debt restructuring period, keeping the debt group unchanged for another six months, is expected to continue to contribute to solving difficulties for businesses, reduce debt repayment pressure, and add resources for production and business recovery.
Green credit needs to be unblocked

Green credit needs to be unblocked

VCN - The demand for green credit in the economy is very high, but there are still many "gaps" that need to be filled for banks to be more confident in providing green financing to businesses and for businesses to have more opportunities to access this capital.
Finding investment direction for market fluctuations

Finding investment direction for market fluctuations

VCN - Many indicators show that there are still many variables that can impact financial investment activities in the second half of 2024. However, the economy is still in recovery, so calculating and choosing investment channels appropriately, closely monitoring and evaluating new developments are important for investors to pay attention to.

Latest News

Continue to warn about forms of fraud against taxpayers

Continue to warn about forms of fraud against taxpayers

VCN - In response to the increasing prevalence of sophisticated scams targeting taxpayers, the General Department of Taxation (GDT) has issued directives to tax authorities nationwide to strengthen individual income tax management and provide warnings and preventive measures to help taxpayers remain vigilant and protect themselves from fraudulent activities.
Under amended law, it needs clarification on cooperation between commercial banks and insurance companies

Under amended law, it needs clarification on cooperation between commercial banks and insurance companies

VCN - Banks and insurance businesses have different understandings of the regulations in the Law on Credit Institutions 2024.
Corporate bond issuance soars in comparison to 2023

Corporate bond issuance soars in comparison to 2023

VCN - According to the Ministry of Finance, from the beginning of the year to June 21, 2024, 41 enterprises have issued private corporate bonds with a total value of VND 110.2 trillion.
Tax debt recovery is estimated to achieve VND 45,468 billion

Tax debt recovery is estimated to achieve VND 45,468 billion

VCN - In the first half of 2024, tax authority at all level has issued 16,859 notifications on temporary exit suspension and recovered VND918.7 billion of tax debt from 1,482 taxpayers.

More News

Public accounting standards publication contributes to spreading investment attraction

Public accounting standards publication contributes to spreading investment attraction

VCN - According to a World Bank (WB) expert, the publication of public accounting standards not only helps strengthen the sustainability of the financial system but also creates a ripple effect in attracting private sector and foreign investment.
Promote  information transparency to increase large-scale investors in  stock market

Promote information transparency to increase large-scale investors in stock market

VCN - Deputy Minister of Finance Nguyen Duc Chi talked with Customs News about the goal of upgrading Vietnam's stock market and solutions to achieve this goal by 2025.
Ministry to release final draft circular on stock market upgrades

Ministry to release final draft circular on stock market upgrades

The Ministry of Finance is set to announce the final draft of a circular related to the upgrade of Vietnam's stock market and operate the Korea Exchange (KRX) system this week.
Ensure price stability associated with macroeconomic stability

Ensure price stability associated with macroeconomic stability

VCN – To stabilize market prices from now until the end of the year, especially implementing the salary reform, the Ministry of Finance will implement solutions and respond to ensure price stability associated with macroeconomic stability.
Minister of Finance: continue to advise on promulgating fiscal policies to help economy recover and develop

Minister of Finance: continue to advise on promulgating fiscal policies to help economy recover and develop

VCN - According to Minister of Finance Ho Duc Phoc, although implementing policies to reduce and extend taxes and fees will impact budget revenue, the Ministry has reviewed, evaluated and continued to promulgate a number of fiscal policies to support people and businesses.
Vietnam rises 11 places in budget transparency ranking

Vietnam rises 11 places in budget transparency ranking

VCN - The results of the Open Budget Survey 2023 (OBS 2023) have just been announced by the International Budget Cooperation (IBP), Vietnam's budget transparency ranking continues to be raised to 57 out of 125 countries, climbing 11 places compared to the 2021 assessment period and rising 20 places compared to 2019.
Total budget revenue in first half of year reaches 60% of estimate

Total budget revenue in first half of year reaches 60% of estimate

VCN - According to the Ministry of Finance, total state budget revenue in the first six months of the year was quite good and grew over the same period last year. This results in effective implementation of tax laws and state budget collection tasks, revenue management, and anti-revenue loss of the Ministry of Finance. Along with that, the Ministry of Finance actively deployed policies to help remove difficulties for businesses and people.
Adding goods item subjected to special consumption tax

Adding goods item subjected to special consumption tax

VCN - According to Ministry of Finance – drafting agency, one of the purposes of amending Law on Special Consumption Tax this time is to perfect regulations on special consumption tax policy to expand the collection base and ensure transparency, ease of understanding, and ease of implementation to contribute to improving the capacity and efficiency of tax management activities. To achieve this goal, the draft Special Consumption Tax Law has many amendments on taxable objects.
The "compass" for policy credit

The "compass" for policy credit

VCN - Directive No. 40-CT/TW issued on November 22, 2014, by the Central Committee of the 11th Party Congress, focusing on enhancing the Party's leadership over social policy credit, is recognized as a sound policy by both the Party and the State, becoming a "compass" for policy credit activities.
Read More

Your care

Latest Most read
Continue to warn about forms of fraud against taxpayers

Continue to warn about forms of fraud against taxpayers

General Department of Taxation has issued directives to strengthen individual income tax management and provide warnings and preventive measures to protect themselves from fraudulent activities
Under amended law, it needs clarification on cooperation between commercial banks and insurance companies

Under amended law, it needs clarification on cooperation between commercial banks and insurance companies

VCN - Banks and insurance businesses have different understandings of the regulations in the Law on Credit Institutions 2024.
Corporate bond issuance soars in comparison to 2023

Corporate bond issuance soars in comparison to 2023

According to the Ministry of Finance, from the beginning of the year to June 21, 2024, 41 enterprises have issued private corporate bonds with a total value of VND 110.2 trillion.
Tax debt recovery is estimated to achieve VND 45,468 billion

Tax debt recovery is estimated to achieve VND 45,468 billion

In the first half of 2024, tax authority at all level has issued 16,859 notifications on temporary exit suspension and recovered VND918.7 billion of tax debt from 1,482 taxpayers.
Public accounting standards publication contributes to spreading investment attraction

Public accounting standards publication contributes to spreading investment attraction

VCN - According to a World Bank (WB) expert, the publication of public accounting standards not only helps strengthen the sustainability of the financial system but also creates a ripple effect in attracting private sector and foreign investment.
Mobile Version