VN central bank applies daily reference exchange rates
The State Bank of Vietnam (SBV) on January 4 launched the daily average inter-bank exchange rate between the Vietnam dong and the U.S. dollar and reference exchange rates between the dong and some other foreign currencies.
The move is in line with the central bank’s Decision No. 2730/QD-NHNN dated December 31, 2015, which took effect on January 4.
Based on the average inter-bank exchange rate, local banks and foreign bank branches in Vietnam that provide forex services can quote their dollar buying and selling prices on a daily basis.
This rate depends on fluctuations of the average inter-bank exchange rate, developments on world forex markets having close trade, lending, borrowing and investment ties with Vietnam and macro-economic conditions. It must be compatible with Vietnam’s monetary policy targets.
A deputy general director of a bank said this rate will depend on a basket of eight hard currencies, and on dollar supply and demand on the domestic market. Macro-economic issues like inflation and interest rates also affect the daily average inter-bank exchange rate.
According to the central bank, the new foreign exchange management mechanism enables the dong-dollar exchange rate to move in line with dollar supply and demand in Vietnam and with global market developments, and enhance the SBV’s role in executing monetary policy.
The SBV said the information of the daily average inter-bank exchange rate is to keep the forex market stable and support macro-economic stability and operations of businesses.
The central bank pledges to adopt appropriate measures and is willing to sell the U.S. dollar if needed to stabilize the forex market and keep the dong-dollar exchange rate within the permissible trading band. The trading band has been at 3% on either side since August last year.
Banks said the new management mechanism is similar to China’s.
SBV governor Nguyen Van Binh told reporters earlier that the mechanism is to discourage enterprises and residents from hoarding U.S. dollars.
The average inter-bank exchange rate on January 4 was VND21,896 per dollar. Given the dong-dollar trading band at 3%, local banks could trade the greenback in a range of VND21,239 and VND22,553.
Banks on January 4 raised their dollar buying prices by around VND40 against those on the previous trading day on December 31.
Techcombank offered the dollar buying price at VND22,430 and the ceiling price at VND22,545, up VND15 versus December 31, while ACB bought one dollar at VND22,460 and sold it at VND22,540, up VND40 and VND20 respectively.
At Vietcombank, one dollar was traded for VND22,470 for buying, up VND20 and VND22,540 for selling, unchanged from the previous trading day.
At the end of the day, buying and selling prices quoted by the three banks stayed the same.
On the informal market, the dollar was bought at VND22,640 on January 4 (up VND10) and sold at VND22,670.
A bank told the Daily that dollar demand was normal, hence the exchange rate stability. He said it will take a few days to know the market trend, which also depends on the SBV’s moves.
VN central bank adopts flexible rate mechanism
Vietnamese dong weakened 10 to 50 dong per dollar at commercial banks yesterday morning, after the central bank lowered the dong's reference rate for the first time since August.
Transactions are conducted at Techcombank. The official dollar/dong rate will now be adjusted daily following a State Bank decision.
The State Bank of Viet Nam (SBV) yesterday said the fixed reference inter-bank exchange rate was VND21,896 per dollar, six dong higher than the previous level.
This is the first time the central bank has quoted the reference rate following the new exchange rate mechanism that it announced in Decision No 2730/QD-NHNN, dated December 31, 2015.
The decision said the central bank would set a central rate every day, instead of maintaining a fixed rate for a long period of time. The trading band of the new rate continues to be plus or minus three per cent.
The ceiling and floor rates remain almost unchanged with yesterday's minor adjustment.
At Vietcombank and BIDV, a dollar was bought at VND22,470 per dollar, increasing 20 dong over the last trading session, while its selling prices hovered around VND22,540.
Vietinbank bought the greenback at VND22,465 per dollar, up 15 dong over the previous session, although its selling price was down 5 dong, at VND22,535 per dollar.
ACB raised both buying and selling prices by 10 dong, quoting the rates at VND22,430 and VND22,530 respectively, while Eximbank increased the prices by 15 dong, listing them at VND22,445 and VND22,535 respectively.
The buying price at Techcombank rose by up to 50 dong, at VND22,450 per dollar, while the selling price increased by 15 dong to VND22,545 per dollar.
The SBV said the dollar/dong rate would now be based on the exchange rate changes in the inter-bank foreign exchange market, as well as monetary developments in countries that are involved with Viet Nam's trade, investment and financing to a major extent.
The daily-adjusted rate was to be in line with macroeconomic balance and would be the basis for local credit institutions and foreign banks' branches to provide their foreign exchange services, it said.
The central bank said the new mechanism would enable it to ensure its management objectives, while letting the exchange rate move flexibly as per global monetary fluctuations.
These are part of its measures to improve the position of the Vietnamese currency, stablise the foreign exchange market and the economy, and support production and businesses activities.
The central bank would carry out comprehensive monetary measures and was willing to sell foreign currencies, if necessary, for proper exchange rate developments and a stable foreign exchange market, it said.
SBV Deputy Governor Nguyen Thi Hong told the press that the more flexible exchange rate operations would be suitable to the global trade and investment situation, after the countries had entered a variety of free trade agreements (FTAs).
She referred to Viet Nam's conclusion of negotiations for FTAs with the Eurasian Economic Union, the European Union, South Korea and the Trans-Pacific Partnership last year. The country also became part of the ASEAN Economic Community, which was established last December 31.
"A flexible rate mechanism is necessary to guarantee competitiveness in the context of deeper integration," Central Institute for Economic Management Deputy Director Vo Tri Thanh told news website ttvn.vn.
While improved macro-level stability, especially low inflation, enabled rate operation flexibility, any continuing fixed rate with an overly valued dong was likely to cause the country to loose its competitiveness.
Nguyen Van Han, an accounting official at automobile firm Cuu Long TMT, told the Vietnam News Agency that enterprises always preferred stable exchange rates, which helped them better control costs and assure profits in their business.
Now they would have to track market developments more closely in the face of everyday exchange rate fluctuations, he said.
BIDV's monetary and capital source director Do Ngoc Quynh said the situation would require banks to provide financing derivatives transferable with terms, in order to help enterprises work out proper business development and risk prevention plans.
"I believe this will stimulate both banks and enterprises to approach management and business methods that are more suitable to standards and routines of the international markets," he said.
Thanh said more frequent rate fluctuations following the new mechanism would also curb dollar speculation in the domestic market.
This would facilitate a balance in foreign currency demand and supply, and support the Government's efforts to prevent "dollarisation" in the economy, industry insiders said.Margin limit for exchange rates remains at +/-3
The margin limit for exchange rates remains at +/-3, Deputy Governor of the State Bank of Vietnam Nguyen Thi Hong told a press conference in Hanoi on January 4.
The margin is subject to the Vietnamese dong exchange rate to the US dollar, the Euro, the Chinese yuan, the Thai baht, the Singapore dollar, the Japanese yen, the Republic of Korea won and the Taiwan dollar, according to Director of the State Bank of Vietnam (SBV)’s Monetary Policy Department Bui Quoc Dung.
Dung said the move will facilitate supply and demand of foreign currencies, thereby encouraging lending and export-import.
Hong, for her part, affirmed that the central bank steadfastly pursues the monetary goal of stabilising foreign exchange market and improving the Vietnamese dong’s value by minimising dollarisation.
SBV: Forex rate more flexible but still under control
The State Bank of Vietnam (SBV) now allows the exchange rate between the dong and the U.S. dollar to move more flexibly but still keeps it under control depending on daily movements of hard currencies in the world.
At a press conference call in Hanoi on January 4, director of the SBV’s Monetary Policy Department Bui Quoc Dung said the exchange rate would depend on three groups of factors – inter-bank rate, currency movements in Vietnam’s key trade and investment partner countries and macroeconomic balances. The new move aims to fight dollarization and help enterprises and individuals reduce risks.
Dung said the dong-dollar exchange rate has faced rising pressure from global markets and that uncertainty remains given the U.S. Federal Reserve’s possible interest rate hike by four times and unpredictable movements of the Chinese yuan. Meanwhile, Vietnam has intensified international integration by signing many free trade deals, so its forex policy should be more flexible from 2016 onwards.
The SBV on January 4 announced the reference exchange rate for the dong and the greenback at VND21,896 per dollar, up VND6 against late last year. Such rate is decided by inter-bank rate, currency movements in Vietnam’s key trade and investment partner countries and macroeconomic balances.
In fact, exchange rate monitoring in the world is divided into two groups, with the first – China – using the closing exchange rate of the previous day as the reference and the second – countries such as Singapore and Kuwait – using the reference level of a group of currencies on global markets. Therefore, the SBV will manage the forex market based on both domestic supply and demand, and global market movements, Dung said.
Besides, the reference exchange rate depends on the U.S. dollar, European euro, Chinese yuan, Japanese yen, Singapore dollar, South Korean won, Taiwan dollar and Thai baht because these countries and territories are large trade and investment partners of Vietnam, Dung added.
Nguyen Thi Hong, deputy governor of the central bank, said the Vietnam dong-U.S. dollar exchange rate is driven by market forces but remains under control. The SBV will try to avoid causing exchange rate volatility.
The reference exchange rate is for local banks and foreign bank branches to set their own rates. Banks in Vietnam are allowed to trade the dollar within a band of 3% on either side, Hong said
Regarding possible impact of the new forex policy on businesses, Dung said the new mechanism would facilitate foreign currency trading. Enterprises will be exposed to less risk.
The SBV is still determined to stabilize the forex market and the macro economy, and support economic growth at a reasonable level, Hong said.