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Exchange rates hover near historical highs
Substantial foreign investor outflows from Vietnam’s equity markets might prompt the central bank to introduce measures to stabilise exchange rates, facing heightened volatility.
According to an SSI Research study last week, domestically, the USD/VND exchange rate exhibited divergence across different markets. The interbank exchange rate rose by 0.1 per cent, closing on March 29 at 24,790 VND/USD - a 2.15 per cent increase since the end of 2023, and just 0.3 per cent below the historical peak. The exchange rates listed by Vietcombank and in the informal market are also oscillating near historical highs.
“Despite positive trade balance and foreign investment disbursement figures for March, the exchange rate trend has been less favourable due to strong international market pressures. The State Bank of Vietnam (SBV) may need to implement more vigorous measures to cool the demand for USD,” SSI highlighted.
Reflecting on 2023, SBV Deputy Governor Dao Minh Tu described the exchange rate dynamics as “highly volatile,” attributed to the challenges posed by global economic policy shifts directly impacting Vietnam, especially in the trade sector.
Entering 2024, exchange rate concerns have persisted. According to Tu, a significant factor contributing to this trend is the Fed’s ongoing ambiguity regarding monetary policy easing and interest rate cuts, which has recently bolstered the US dollar considerably. This surge has affected the valuation of global and regional currencies, including VND.
“Moreover, the SBV has observed an increased pressure on the exchange rate due to Vietnam’s reduced interest rates, further exacerbated by a negative interest rate differential between the USD and VND in the interbank market,” Tu said.
In the last 20 trading sessions on the Ho Chi Minh Stock Exchange up to April 3, foreign investors have net sold approximately VND14.3 trillion ($595.8 million), and one of the key reasons identified by experts is the significant pressure from the exchange rate.
“To prevent devaluation of their USD-denominated investments, they have opted to withdraw capital from the Vietnamese stock market to preserve investment value and await a more stable exchange rate,” an industry insider told VIR.
“The strategic retreat by foreign investors from Vietnam’s stock market is primarily a defensive move to shield their investments from exchange rate volatility. In light of the current financial climate, preserving capital has taken precedence, with a keen eye kept on the exchange rate for a potential re-entry point,” he added.
The expert also stated that Vietnamese companies engaged in export and import operations possess the advantage of minimising exchange rate risk, courtesy of their stable foreign currency cash flows, which facilitates the strategic retention of funds for debt servicing.
Tu of the SBV assured, “The SBV’s management ensures that the current exchange rate maintains stability and secures a healthy foreign exchange market.”
He also noted that the VND’s depreciation rate against the USD remains modest compared to other major currencies, with a 2.9 per cent decrease in 2023 and a current interbank rate increase of 2.6 per cent. This is relatively low when juxtaposed with the depreciation rates of other key economies against the USD, highlighting the global impact of USD exchange rate fluctuations on these economies.
“The SBV is fully prepared to intervene in the market using our foreign exchange reserves to ensure stability. It’s vital for both the public and businesses to understand that exchange rate management is central to our government’s policy, rigorously managed and controlled. We are dedicated to proactively using our monetary tools to maintain exchange rate stability in the future,” Tu emphasised.
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