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Forex policy aims to control trade deficit
As a trade deficit pressure on exchange rate has been predicted, the State Bank of Viet Nam is actively operating a forex policy consistent with trade deficit and economic growth.
Statistics from the General Department of Customs showed that the country's trade deficit as of May 15 amounted to US$3.7 billion compared to $1.3 billion surplus during the same period last year. During this period, imports rose 18.7 per cent, higher than that of the same period in 2014 and more than double the growth rate of exports.
Deficit anticipated
According to the central bank, a trade deficit has been anticipated as the target of not devaluating Vietnamese dong by more than 2 per cent of the State Bank was on the basis of a projected trade deficit of $6-7 billion in 2015. However, a surging trade deficit right from the beginning of the year was unexpected due to unfavourable factors. Therefore, the central bank must actively use up the 2 per cent range targeted for the whole year to support export activities, contributing to controlling the trade deficit.
Although the forecast for this year's trade balance will turn from surplus to deficit, the SBV believes that the overall balance of payment in 2015 will remain surplus despite a sharp drop compared with last year. It means foreign currency demands will be met because of attribution from other sources of remittance, foreign direct investment (FDI), and foreign loans.
In fact, the imports of FDI firms in the first months climbed 25.5 per cent, much higher than the country's 18.7 per cent overall growth rate. However, most of the payments were financed by their foreign loans from parent companies. In addition, the exports of the FDI sector also surged and their foreign currency supply and demand remained self-balancing.
According to the central bank, despite rising trade deficits, it acquired a significant amount of foreign currencies to boost foreign exchange reserves in the first months of the year.
"This is an important basis for the central bank to consistently pursue the objective of exchange rate management for macroeconomic stability," the central bank said on its website.
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