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After stabilizing through 2016, the dong/dollar exchange rate fluctuated heavily in late 2016 and early 2017, before and after the US FED announced the decision to raise the prime interest rate on December 15, 2016.
The upward trend of the dollar price lasted until March 16, 2017, when FED raised the interest rate for the second time within three months.
The prediction that there would be two or three more interest rate increases in 2017, and the reported high trade deficit, at $1.2 billion in the first two months of 2017, both raised worries about the continued dong depreciation and the bad performance of the economy.
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After stabilizing through 2016, the dong/dollar exchange rate fluctuated heavily in late 2016 and early 2017, before and after the US FED announced the decision to raise the prime interest rate on December 15, 2016. |
However, to analysts’ surprise, the exchange rate has reversed after March 16, 2017. The dollar price decreased so sharply that SBV had to intervene the market by raising the dollar purchase price from VND22,575 per dollar to VND22,675.
Vietnam doesn’t want to see the dollar depreciate too sharply because this won’t encourage the export. Meanwhile, the government is facing big challenges when the GDP growth rate in the first quarter of the year was modest, at 5.1 percent only.
Economists pointed that the plentiful FDI was the major factor that helped keep the exchange rate stable in 2016. The State Bank bought over $10 billion in the year.
However, the FDI in the first three months was $3.6 billion only, a modest increase of 3.4 percent compared with the same period last year.
What is the reason behind the reverse of the exchange rate, despite the bad news such as the low GDP growth rate and high trade deficit? The answer lies in the FPI.
Vietnam is now considered a ‘bright spot’ in SE Asia in terms of attractive foreign investment (FDI and FPI).
GSO recorded 1,077 cases of foreign investors buying stakes in and contributing capital to Vietnamese businesses in the first three months of the year. This means that there would be VND19 trillion pumped into the national economy.
A report showed that foreign investors’ net purchases had reached VND17.866 trillion in the stock market by April 20, 2017.
Foreign investors buy shares because they expect the share prices to increase in the future. Food and beverage companies are catching the special attention of foreign investors.
Foreign investors also have big interests in Vietnam's government bonds. The bond yield in Vietnam is higher than that in other countries with the same risk levels as Vietnam, such as Indonesia and the Philippines.
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