The exchange rate is heated up: Need flexible regulation to control inflation

Inflation control still needs to pay attention to the increase in exchange rates.

Many factors affect the increase in exchange rates

Right from the first week after the Lunar New Year holiday, the USD/VND exchange rate fluctuated strongly in markets, especially in the free market. Accordingly, the central exchange rate announced by the State Bank (SBV) is currently 24,017 VND/USD, an increase of more than 100 VND compared to the beginning of 2024. At commercial banks, the exchange rate between USD and VND is around the level of 24,500 VND/USD on the buying side and 24,870 VND/USD on the selling side, an increase of nearly 2% compared to the first day of 2024.

In particular, the exchange rate on the free market is at the highest price in history, currently at 25,280-25,350 VND/USD (buy-sell) in the afternoon session of March 7. This price has decreased by more than VND200 each way compared to the previous session, and Meanwhile, the free USD price continuously increased in previous sessions.

According to experts, the increase in the domestic USD price in the first two months of this year was impacted by the high USD price in the world market. If the USD Index (measuring the strength of the USD with 6 major currencies) was at 101.38 points at the beginning of the year, it has now risen to over 104 points. In addition, USD interest rates remain high as the US Federal Reserve (Fed) maintains its anti-inflation stance and keeps monetary policy tight.

In particular, one reason why the free USD increased strongly is that gold prices are also at record levels. Currently, the domestic gold price is increasing like a "storm". SJC gold price in the trading session on March 7 increased by VND800,000 per tael in both directions, pushing the buying price to reach 81.75 million VND/tael and the selling price to 79.8 million VND/tael, while the price of gold rings also increased sharply to nearly 69 million VND/tael.

Economic expert Dr. Le Xuan Nghia said that according to statistics from the World Gold Council, Vietnam consumes about 50-60 tons of raw gold/year, so the amount of foreign currency that must be spent to buy up to billions of dollars each year, from there, it put pressure on exchange rates. In particular, in recent times, the domestic gold price has often been 13-20 million VND per tael higher than the world gold price, creating a "hole" for smuggling and causing USD on the free market to increase sharply.

In addition, economic expert Dr. Bui Trinh acknowledged that the total import turnover in the first two months of 2024 is estimated to reach US$54.62 billion, an increase of 18% over the same period last year. The demand for export enterprises has increased orders, so the import of raw materials to produce goods has also increased, leading to the need to buy foreign currency for payment and increasing the exchange rate.

Coordination and forecasting promptly

With a series of reasons for the sharp increase in exchange rates, many experts still affirm that it does not affect the stability of the foreign exchange market as well as the issue of inflation control, not only thanks to abundant liquidity from the trade surplus, high FDI disbursement, external reserves but also thanks to VND still being considered a strong currency when compared to countries in the region, such as the Thai Bath (decreased 5%), followed by Malaysia Ringgit (-3.8%), Korean Won (-3.1%).

Mr. Dinh Duc Quang, Managing Director of Currency Business Division, UOB Vietnam Bank, assessed that the volume of foreign currency transactions on the free market only accounts for a small part of the overall activity of the foreign exchange market because most transactions serving the demand of import and export, foreign loans and debt repayment, foreign investment of businesses and legal transactions of individuals such as studying abroad, tourism, remittances... all take place on banking transaction channel. Therefore, when the exchange rate on the free market fluctuates more than the exchange rate at banks, it will not affect the entire foreign exchange market.

However, strong fluctuations in exchange rates still partly create concern for investors and businesses. According to some forecasts, exchange rates in 2024 may increase by 2-3% compared to the previous year. Therefore, businesses and investors are always interested in solutions as well as public services to control the foreign exchange market from the State Bank.

So recently, the monetary management agency has always affirmed to ensure liquidity and stability of the foreign currency market. In a recent speech at a conference related to stock market development, Deputy Governor of the State Bank of Vietnam Pham Thanh Ha said that the State Bank would continue to operate open market operations flexibly, ensuring liquidity for the system of credit institutions; at the same time, managing interest rates and exchange rates proactively and flexibly, following macroeconomic balance, inflation, and monetary policy goals... In particular, the representative of the State Bank also commented, on maintaining stability in the money market. Currency, foreign exchange, and exchange rates will contribute to making policies to attract capital from abroad more effective; help build investors' confidence in a stable business environment; creating future stepping stones in attracting more capital from abroad to invest and develop the stock market in the future.

In addition, ministries and branches including the Ministry of Finance are still actively implementing many solutions to control inflation following the set goals.

Recently, the Ministry of Finance requested the Price Management Department to continue to implement the task of synthesizing, analyzing and forecasting market prices, and monthly updating price management scenarios.

At the concluding Notice of Deputy Prime Minister Le Minh Khai – Director of the Price Management Steering Committee requested to regulate proactively and flexibly monetary policy following set goals, harmonious coordination and synchronization with fiscal policy and other policies, contributing to stabilizing macroeconomics, controlling inflation, supporting growth, ensuring major balances of the economy.