Managing balance between exchange rate and inflation

VCN - Currently, foreign exchange rate fluctuations in Vietnam are assessed at an acceptable level, helping to increase foreign exchange reserves. With exchange rate stability, inflation control is also forecasted to have fiscal space to control according to the target.
Need to effectively use tools to prevent exchange rate risks in import and export field Need to effectively use tools to prevent exchange rate risks in import and export field
Stabilizing exchange rate, reducing worries for import-export enterprises Stabilizing exchange rate, reducing worries for import-export enterprises
Solve the exchange rate problem, ensure harmony for import and export policies Solve the exchange rate problem, ensure harmony for import and export policies
Keeping the exchange rate stable contributes to controlling inflation according to the target. Photo: Internet
Keeping the exchange rate stable contributes to controlling inflation according to the target. Photo: Internet

Positive supply of foreign currency

According to the State Bank of Vietnam (SBV), in 2022, the domestic exchange rate and foreign currency market will be under great pressure from complicated, unpredictable and sudden developments in the international market; difficulties in domestic foreign currency supply and demand; the incident of SCB had a negative impact on market sentiment and liquidity.

However, the SBV still manages the monetary policy to create fiscal space for the exchange rate to fluctuate flexibly, thereby absorbing external shocks. Therefore, the foreign currency market is relatively stable again, legal foreign currency needs are fully met.

With the flexible management of open market operations, from the beginning of 2023 until now, the SBV has purchased a large amount of foreign currency to supplement foreign exchange reserves (over 6 billion USD). In addition, for transactions that credit institutions buy foreign currency forward with the SBV, the SBV and other credit institutions have extended these transactions with a total value of 3.99 billion USD, and organized credit cancellation of 1.74 billion USD from the SBV, thereby contributing to the introduction and circulation of a large amount of VND respectively.

For transactions that credit institutions buy foreign currency forward with the SBV, the SBV and other credit institutions have also extended these transactions, through which the SBV does not withdraw/delay the withdrawal of VND from circulation.

In a report on the bond market, experts of SSI Securities Company said that the exchange rate at commercial banks and on the free market was almost flat, fluctuating around 23,450 VND/USD, so the SBV has raised foreign exchange reserves to 91 billion USD. According to SSI, the supply of foreign currency has generally been quite positive in recent years, coming from disbursed FDI, trade balance surplus or indirect cash flow from capital sales or disbursement of foreign loans.

This development is quite contrary to the situation of some world market currencies. Therefore, commenting on this issue, economic expert Dr. Can Van Luc said that the exchange rate fluctuation between VND and USD above 3% is acceptable. The USD depreciates and the US economy is forecasted to have a lower growth rate and will only continue to raise interest rates from now at the end of the year so that other currencies will appreciate again, including VND. According to Mr. Luc, VND has appreciated by 0.7-0.8% against the USD since the beginning of the year, so it is forecasted that the whole year of 2023 may depreciate, only about 0.5-1%.

Not subjective to inflation pressure

According to experts, keeping the exchange rate stable will positively impact inflation, so it is necessary to find a balance between controlling the exchange rate and managing inflation. Because if we "sacrifice" the exchange rate, with an economy with a large openness like Vietnam, we will fall into the situation of importing inflation, pushing up inflation, and affecting the macro economy.

Currently, inflation is still under control, Dr. Nguyen Duc Do, Deputy Director of the Institute of Economics and Finance, Academy of Finance, commented that keeping the exchange rate stable will reduce the pressure to increase interest rates, keeping the prices of imported products stable.

Forecasting exchange rate movements in the coming period, UOB's analysis team assessed that the dong is still likely to remain stable even though the State Bank has cut operating interest rates twice thanks to the recovery of exports and industrial production in the coming months, combined with falling inflation.

But many experts said that although inflation pressure has decreased, it cannot be subjective, because inflation is still close to the target of 4.5% in January 2023, while global inflation is forecasted to continue to remain at a high level, central banks still anchored interest rates at high levels. Therefore, these will be barriers to efforts to keep the exchange rate stable and stabilize inflation.

Therefore, to keep the exchange rate stable, Prof. Dr. To Trung Thanh, Head of the Department of Scientific Management and Research teaching at the Faculty of Economics, National Economics University, considered it one of the "impossible trio", along with the free flow of capital and independence of monetary policy. This expert recommended that the SBV switch to a more flexible exchange rate management mechanism when pursuing inflation targeting policy in the long term. However, in the short term, when it is difficult to float the exchange rate, exchange rate management should be carefully considered to avoid shocks in the context of an unstable macroeconomic background.

Exchange rate is no longer a concern Exchange rate is no longer a concern

VCN - The current context sets requirements for each group of enterprises in hedging against exchange rate ...

From the perspective of the executive agency, during the regular Government meeting in April, Prime Minister Pham Minh Chinh requested harmonious, balanced, reasonable and effective management between interest rates and exchange rates, between growth and inflation, between supply and demand, between monetary and fiscal policy, between internal and external. The SBV also continuously emphasised on goals and solutions to manage the exchange rate in line with market conditions, intervene in the market when necessary, coordinate and synchronize monetary policy measures and tools to stabilize the foreign currency market, contributing to controlling inflation and stabilizing the macro-economy.

By Huong Diu/ Huyen Trang

Related News

Managing price effectively, reducing pressure on inflation

Managing price effectively, reducing pressure on inflation

VCN - Timely and effective price management helps control the consumer price index (CPI) and inflation in accordance with the set target.
Pressure on exchange rate plunges

Pressure on exchange rate plunges

VCN – The State Bank of Vietnam (SBV) has taken measures including intervening in the foreign exchange market and tightening liquidity to reduce pressure on the Vietnamese dong exchange rate.
Inflationary pressure seen from monetary policy

Inflationary pressure seen from monetary policy

VCN - The economy went through the first half of the year, inflation is still under control and forecast to reach the target set by the National Assembly and the Government. However, variables from the currency market such as exchange rates, interest rates, credit..., even gold prices, are issues that need to be paid attention.
Determine tools, policy for inflation control

Determine tools, policy for inflation control

VCN - According to economic expert Associate Professor, PhD. Ngo Tri Long (photo), former Director of the Price Market Research Institute (Ministry of Finance), inflation is an issue that needs special attention, especially related to the management of monetary policy, interest rates, increasing prices of goods and services...

Latest News

Monetary policy forecast unlikely to loosen further

Monetary policy forecast unlikely to loosen further

It will be difficult for the State Bank of Vietnam (SBV) to further loosen monetary policy due to a rising USD/VNĐ exchange rate pressure, experts said.
World Bank outlines path for Vietnam to reach high income status

World Bank outlines path for Vietnam to reach high income status

The World Bank (WB) has released a report which explores how Vietnam can upgrade its participation in global value chains to become a high-income country by 2045.
Strictly control public debt and ensure national financial security  2025

Strictly control public debt and ensure national financial security 2025

VCN – In order to achieve goal of strictly managing public debt and maintaining security and safety of the national financial system in 2025, it is necessary to ensure the borrowings and repayments of public debts is within the approved estimate; closely monitor public debt indicators to ensure that they are within the ceiling and warning thresholds approved by the National Assembly.
Revising the title of a draft of 1 Law amending seven finance-related laws

Revising the title of a draft of 1 Law amending seven finance-related laws

VCN - On November 19, 2024, the Standing Committee of the National Assembly (SCNA) discussed amendments and refinements to the draft of a law revising seven existing finance-related laws. Concluding the session, Vice Chairman of the National Assembly Nguyen Duc Hai emphasized the need for the Government to direct the drafting body and relevant agencies to collaborate closely to finalize a persuasive and widely supported report, ensuring the quality of the draft law for the National Assembly's consideration and decision.

More News

Transparency evates the standing of listed companies

Transparency evates the standing of listed companies

VCN - According to the Hanoi Stock Exchange (HNX), the number of companies placed under warning, control, or restricted trading on the listed and registered markets has increased over the past two years compared to 2022.
State-owned securities company trails competitors

State-owned securities company trails competitors

Contrary to the outstanding performances in the banking sector, the securities subsidiaries of major banks have yet to fully leverage their potential, despite numerous inherent advantages.
Strengthening the financial “health” of state-owned enterprises

Strengthening the financial “health” of state-owned enterprises

VCN - The state economy plays a key role in the socio-economic development process, but it is necessary to strengthen the financial health and competitiveness of state-owned enterprises (SOEs).
U.S. Treasury continues to affirm Vietnam does not manipulate currency

U.S. Treasury continues to affirm Vietnam does not manipulate currency

VCN - In its latest report, the U.S. Department of the Treasury has positively assessed Vietnam's monetary policy, reaffirming that Vietnam does not engage in currency manipulation.
Exchange rate fluctuations bring huge profits to many banks

Exchange rate fluctuations bring huge profits to many banks

Net profits from the foreign exchange trading segment of many banks have gained positive results thanks to a strong USD/VNĐ exchange rate fluctuations this year.
A “picture” of bank profits in the first nine months of 2024

A “picture” of bank profits in the first nine months of 2024

VCN - Pre-tax profits for banks during the first nine months of 2024 remained positive, exceeding 200 trillion VND, solidifying the sector's position as a market leader.
Many challenges in restructuring public finance

Many challenges in restructuring public finance

VCN - Restructuring public finance is an important step to improve state financial management, ensure resources are allocated reasonably and effectively, contributing to the country's sustainable development. In addition to the achieved results, the process of accelerating public finance restructuring also faces many pressures.
Tax declaration and payment by e-commerce platforms reduces declaration points and compliance costs

Tax declaration and payment by e-commerce platforms reduces declaration points and compliance costs

VCN - E-commerce platforms that declare and pay taxes on behalf of traders not only help to reduce the number of tax declaration points but also reduce the cost of compliance with administrative procedures for the whole society because only one point as the e-commerce trading platform implements tax deduction, payment and declaration on behalf of tens, hundreds of thousands of individuals and business households on the platform.
Disbursement of public investment must be accelerated: Deputy PM

Disbursement of public investment must be accelerated: Deputy PM

Deputy Prime Minister Ho Duc Phoc has called on ministries, agencies, and localities to accelerate the disbursement of public investment from now until the year-end and further tighten investment management.
Read More

Your care

Latest Most read
Monetary policy forecast unlikely to loosen further

Monetary policy forecast unlikely to loosen further

It will be difficult for the State Bank of Vietnam (SBV) to further loosen monetary policy due to a rising USD/VNĐ exchange rate pressure, experts said.
World Bank outlines path for Vietnam to reach high income status

World Bank outlines path for Vietnam to reach high income status

The World Bank (WB) has released a report which explores how Vietnam can upgrade its participation in global value chains to become a high-income country by 2045.
Strictly control public debt and ensure national financial security  2025

Strictly control public debt and ensure national financial security 2025

VCN - According to the plan for borrowing and repaying public debt and foreign debt of the country in 2025, the total borrowing demand of the Government in the year is expected to be at VND 815,238 billion, an increase of 20.6% compared to the Government'
Revising the title of a draft of 1 Law amending seven finance-related laws

Revising the title of a draft of 1 Law amending seven finance-related laws

On November 19, 2024, the Standing Committee of the National Assembly (SCNA) discussed amendments and refinements to the draft of a law revising seven existing finance-related laws.
Transparency evates the standing of listed companies

Transparency evates the standing of listed companies

According to the Hanoi Stock Exchange (HNX), the number of companies placed under warning, control, or restricted trading on the listed and registered markets has increased over the past two years compared to 2022.
Mobile Version