The State Bank of Vietnam (SBV)’s sale of USD has impacted the Vietnamese dong (VND)’s liquidity in the market, which could become more severe as demand for liquidity is growing in the remaining months of 2018.

The SBV has sold over US$740 million to stabilize the foreign exchange market over the past week, according to Ho Chi Minh City Securities Corporation (HSC), among the top brokerage houses in Vietnam. 

A major part of Vietnam’s foreign exchange reserves has come from foreign indirect investment (FII) recently, rather than from trade surplus or remittance. Although foreign investment is considered short term, it does not mean the country’s foreign exchange reserves could soon decrease. 

Nevertheless, HSC expected the volatile exchange rate may put more pressure on Vietnam’s foreign exchange reserves. According to HSC, the SBV’s sale of USD has impacted the Vietnamese dong (VND)’s liquidity in the market, which could become more severe as demand for liquidity is growing in the remaining months of 2018. 

At a recent hearing held by the National Assembly, Deputy Prime Minister Vuong Dinh Hue informed that Vietnam's foreign exchange reserves are in excess of US$60 billion.

According to Hue, the exchange rate policy has been managed on the basis of market mechanism, Hue affirmed, adding that Vietnam has combined effectively fiscal and monetary policies, and trade activities.  

In the coming time, the Vietnamese government will give top priority to stabilizing macro-economic conditions and bolstering the resilience of the banking sector against economic shocks, which is also the government's objectives for next year, Hue said. 

On October 27, he stressed that the Vietnamese government does not intend to depreciate the Vietnamese dong (VND) as a means to support exports and ease inflation.

Previously, Andy Ho, CIO of VinaCapital, said the devaluation of the Chinese yuan (CNY) would partly put pressure on the VND, however, Vietnam's foreign exchange reserves are sufficient to help stabilize the exchange rate until the end of the year.

The SBV's net purchase of foreign currencies exceeded US$11 billion in the first half of 2018, taking the nation's foreign exchange reserves to approximately US$63.5 billion, said SBV Governor Le Minh Hung at a government meeting on July 2. 

"This shows the bank has sufficient resources and instruments to stabilize the USD/VND exchange rate and more importantly the market conditions," the governor added.

Hanoitimes