Need to effectively use tools to prevent exchange rate risks in import and export field

VCN - The exchange rate pressure in 2023 is expected to be weaker than last year, especially in the context of tightening monetary policies reaching the final phase. However, fluctuations in the economy and financial markets are still very unpredictable, and exchange rate developments may affect import and export activities.
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 to control inflation and lower interest rates Keeping the exchange rate stable to control inflation and lower interest rates
Stabilizing exchange rates is very important to help businesses maintain production and have foreign currency sources for import and export. Photo: ST
Stabilizing exchange rates is very important to help businesses maintain production and have foreign currency sources for import and export. Photo: Internet

Concerns about global financial instability

Since mid-March, information about instability at some major banks in the US and Switzerland has made the market turbulent. According to the SSI Securities Market report, instability is still happening in the banking system in the US after the Silicon Valley Bank (SVB) event caused a massive withdrawal wave in small and medium-sized banks.

In addition, Credit Suisse (Switzerland) had to accept UBS’s takeover in a deal guaranteed by the Swiss central bank. Therefore, the Federal Reserve (Fed), the European Central Bank (ECB), and some other major central banks have had to announce the implementation of currency swap contracts to support USD liquidity to prevent potential contagion from the collapse of a series of banks in recent times.

In addition, the Fed has decided to raise interest rates for the 9th time since the beginning of last year, increasing by 0.25%, bringing the current overnight lending rate of the Fed to 4.75-5%. Not only the Fed, but also the Swiss National Bank raised interest rates to 0.5%, despite the Credit Suisse incident.

This development has made experts predict that high interest rates will continue to be maintained in the context of uncontrolled inflation. Currently, the DXY index - which measures the fluctuation of the USD against the basket of 6 major currencies in the world - is trading around 103 points, recovering after falling to the lowest level in 7 weeks at 102.3 points in the trading session last week. However, the current level of the DXY index is still much lower than the 105.6 points reached in early March.

However, the current domestic context shows that exchange rates are no longer a major concern. The important issue here is that monetary authorities must balance inflation control and economic growth. According to financial and banking expert, Mr. Can Van Luc, compared to last year, interest rate and exchange rate pressures in Vietnam have decreased significantly at the beginning of this year. Therefore, this Fed rate hike is anticipated and factored in by regulatory agencies and investors, so it will not have a significant impact on the Vietnamese market.

In Vietnam, the central exchange rate on March 27th was quoted at VND 23,602/USD, up 2 dong compared to the previous weekend. At commercial banks, the exchange rate is currently quoted at VND 23,340/USD for buying and VND 23,660/USD for selling, with little fluctuation compared to the beginning of 2023.

According to experts, inflation in Vietnam has cooled down and the projected inflation rate for Vietnam in 2023 is expected to increase by around 3.2-4.5%, which is within the government's target of 4.5%. Therefore, this will be a favorable factor for the State Bank of Vietnam (SBV) to continue to loosen its monetary policy. Consequently, the SBV is continuously buying foreign exchange reserves after selling about USD 27 billion in the late period of last year to support the exchange rate.

Using good risk prevention tools

In the context of businesses needing to recover, cheap capital and foreign currency will have a positive impact on investment activities for production and business, importing and exporting materials and goods. According to representatives from AAGroup Consultancy and Trading Co., Ltd., for businesses that have to import, high exchange rates will increase product costs, making them harder to sell, but for export businesses, the opposite is true - an increase in exchange rates will help increase revenue and profits. Therefore, stabilizing the exchange rate is very important to help businesses maintain production activities and have foreign currency for importing and exporting.

Regarding the exchange rate in the near future, experts from ACBS Securities Company believe that pressure to devalue the Vietnam dong will be low because the USD is weakening with a forecasted slowdown in interest rate hikes by the Fed in 2023 and a possible stop in interest rate increases in the second half of 2023.

In addition, FDI disbursement is expected to continue to grow strongly as Vietnam remains a low-cost producer, with stable macroeconomic conditions and more competitive labor costs in the region. Along with this, the strong recovery of the service sector, especially from international tourism, is also a supportive factor for foreign capital flows. Importantly, export activities, one of the main sources of USD supply for Vietnam, may still be optimistic in 2023, although the growth rate may be adjusted.

However, experts still warn of the need to continue to be cautious of inflation, the weakening of the Vietnamese dong, which requires regulatory agencies to be ready to respond. According to experts from the World Bank, the authorities need to adjust the exchange rate intervention mechanism to avoid reserve losses, through measures to increase exchange rate flexibility and continue to tighten liquidity in the domestic market.

Regarding businesses, economic expert Le Quoc Phuong, former Deputy Director of the Industrial and Commercial Information Center (Ministry of Industry and Trade), believes that in the long run, import-export businesses need to improve their forecasting to plan their production and business activities, including proactively identifying the most appropriate contingency scenarios for exchange rate fluctuations and participating in risk prevention tools for exchange rates.

Currently, both Vietnamese and foreign banks have many products and services to support import-export businesses such as commercial financing, international payment incentives, and foreign currency trading. Therefore, if businesses are more proactive in choosing banks with good commercial financing capabilities, using derivative financial tools, while screening markets and diversifying payment currencies, they will have more opportunities to reduce risks and even benefit from currency price differences.

By Huong Diu/ Phuong Thao

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