Vietnam: USD reaches high price, currencies depreciate to record low

The forex market has seen heavy fluctuations amid a tense situation as the US has raised interest rates as well as other central banks. The high prices of USD have affected the Vietnamese dong.

USD/VND exchange rate reaches VND24,000

The VND/USD official exchange rate has been increasing in recent sessions, ahead of the US Federal Reserve’s (FED) meeting, and the dollar continued at a two-decade high.

The official exchange rate has seen the fifth consecutive increase. On September 20, the USD increased by VND6 to VND23,301/$1 and was unchanged on September 21. With the currently applied +/-3 band, the ceiling exchange rate hit the VND24,000/$1 threshold. The selling price at the SBV Exchange climbed to VND23,700/$1.

The official exchange rate has increased by VND156 or 0.7 percent so far this year.

At commercial banks, the exchange rate has also been adjusted. Vietcombank has raised the rate to VND23,810/$1 (buy) and VND23,530 (sell), up VND200 compared with the lowest figure in early September. 

The Bank for Investment and Development of Vietnam (BIDV) has raised the rate by VND190 over the last three weeks.

On the black market, the rate has increased by VND80 (buy) and VND130 (sell), to VND24,060-VND24,160/$1 (buy and sell).

The VND has decreased while the USD has stayed at a 20-year high. It is highly possible that the US FED will raise the interest rate by another 75 percentage point to 3-3.25 percent to control inflation.

The USD is on the rise. DXY (US Dollar Index), the factor that measures the dollar’s fluctuations in comparison with the basket of six key currencies, has climbed to over 110 points.

So far this year, the US FED has raised the interest rate four times by 225 percentage points. The market expects the FED to reduce interest rates by autumn 2023.

CNBC cited Loretta Mester, President of the Federal Reserve Bank in Cleveland, as saying that in the battle against inflation, the interest rate will increase considerably before the FED  reduces it.

The head of the US FED, Jerome Powell, at a conference on August 25-26, stated that the US view is that the central bank will continue to tighten monetary policy to fight inflation.

VND under pressure

Analysts say the VND is under pressure to depreciate. According to Maybank, as of the end of 2021, VIetnam’s total forex reserves had reached $107 billion. The SBV over the last 20 years has continued to sell dollars, leading to a 12 percent decrease in reserves.

According to SSI Research, the State Bank of Vietnam (SBV) sold a large amount of USD from the forex reserves last August. This, plus the withdrawal of VND through OMO, helped ease pressure on the exchange rate and support market supply.

SSI Research estimated that as of August, SBV had made a net withdrawal of VND115 trillion through OMO and VND70 trillion through foreign currency sale channels.

A SBV official told a forum several days ago that it will not let credit grow more than 14 percent this year and will make efforts to stabilize the exchange rate.

SBV’s management policies are relatively cautious. The pressure on the exchange rate still exists, and there is not much space for policy changes from now to the year-end. 

Vietnam doesn’t want to see the VND depreciate sharply, because this would lead to a drop in foreign investors’ confidence in the country, and put pressure on consumer good prices and inflation.

Truong Van Phuoc, a senior banking expert, said that Vietnam needs to keep the exchange rate stable to control inflation.

SBV may have to follow other central banks and raise interest rates to prevent the VND from sharply depreciating against the USD. 

However, high interest rates will make businesses face more difficulty as they need capital and have high hopes for bank loans. The gross domestic product (GDP) growth rate, therefore, may not reach the targeted level.

Ngoc Cuong