The exchange rate has been under pressure to increase in recent trading sessions though fluctuations have declined.

After climbing to the historical peak of VND24,110 per dollar on October 20, the official exchange rate was lowered by SBV to VND24,087 per dollar on October 25. With the currently applied trading band of +/- 5 percent, the ceiling dollar price in the market was VND25,291 per dollar. 

Most commercial banks quote selling prices at VND24,730-24,760 per dollar, lower than the ceiling level and the historical peak of VND24,888 per dollar seen on October 25, 2022. However, this is still the highest level so far this year. The Vietnam dong is still under pressure to decrease as the greenback is getting stronger in the world market amid uncertainties.

On October 25, 2023, Vietcombank quoted dollar prices at VND24,300-24,730 (buy and sell). The dollar price increased by VND85 per dollar (both buy and sell prices).

As such, compared with late September, the dollar price at Vietcombank increased by 1.1 percent, thereby putting pressure on the monetary policy as well as the SBV’s efforts to fight high inflation, and measures to stimulate the economy to bounce back.

The dong/dollar exchange rate continues to increase despite the central bank’s move of intervening in the interbank market’s liquidity via the issuance of 28-day T-bills.

From September 21 to October 24, SBV withdrew VND263 trillion from circulation, while VND30 trillion worth of T-bills became due. The total withdrawal was VND233 trillion.

Analysts said though the exchange rate still tends to increase, the pressure on the local currency has reduced. The interbank interest rates increased again from the record low of 0.35 percent per annum on October 13 to 1.47 percent on October 20. The 3-month interest rate has surged to 3.5 percent per annum, coming closer to the capital mobilization interest rate in tier-1 market, which narrowed the gap between the dong and dollar deposit interest rates.

According to ACB Securities, the dollar price has been increasing mostly because of the interest rate gap between dollar and dong loans which has lasted since May 2023 and the increase of DXY, the index that measures the fluctuations of the dollar in comparison with six major currencies.

As credit grows slowly and the liquidity in the interbank market is high, dong loan interest rates are at a record low. The gap between dong and dollar deposits in the interbank market has been at 3-3.5 percent for a long time. Therefore, all commercial banks have kept the status of dollar net purchase, which has helped push the exchange rate up.

Meanwhile, DXY has risen sharply from 99 points in mid-July to 106.35 points.

The 10-year US bond yield soared and reached the 16-17 year peak on October 23, at above 5 percent per annum. This showed the expectation that the US FED will maintain high interest rates and the government will continue to sell bonds to solve the increasingly high deficit.

Defining new balancing point

After the central bank withdrew money from circulation, the forex market became stable again. The dollar keeps moving up, but the pressure on the local currency is no longer high.

One month after the issuance of 28-day T-bills to withdraw dong abundant in the interbank market, the VND interest rate is approaching the 1-3-month deposit interest rates in tier-1 market.

However, if the interest rates increase further and stay high for a long time, this may prompt commercial banks to raise deposit interest rates again, which will cause a domino effect in the banking system. 

Meanwhile, the dollar has appreciated by 1.12 percent recently, not far from the peak of VND24,888 per dollar in 2022.

ACB Securities believes that any increase in interest rates or exchange rate in upcoming days will lead to the fact that the central bank applying new policies in order to reach the goal of stabilization and balancing.

However, it said that SBV still has efficient tools to maintain the stability of the exchange rate and interest rate. Vietnam’s foreign currency supply is high thanks to high exports, FDI, and foreign portfolio investment. The pressure on foreign debt payments is not high.

The General Statistics Office (GSO) reported a goods trade surplus of $21.6 billion in the first nine months of the year.

Manh Ha