The dollar price quoted by commercial banks increased after SBV cut key interest rates and the US FED slashed the interest rate for the second time within a month to nearly zero percent.

Vietcombank on March 24 quoted the dollar price at VND23,560-27,750 (buy/sell) per dollar, an increase of VND440-460 per dollar compared with March 16, one day before SBV officially reduced the prime interest rate.

In the free market, the greenback price reached a new peak of VND23,900 per dollar early last week. The gap between the exchange rate quoted by banks and the free market price has narrowed.

Prior to that, the dong value had been stable amid the devaluation of many local currencies in the region.

HSBC predictd that the dong/dollar exchange rate will increase slowly and reach VND23,450 per dollar by the end of 2020, which means 1.2 percent depreciation of the dong, provided that the Chinese yuan value is stable.

The dong is predicted to lose 1.2 percent of its value in 2020, which will put Vietnam at a disadvantage in attracting FDI.

The bank’s Yun Liu said in 2019, SBV added $25 billion into forex reserves and it is ready to use the reserves to control fluctuations of the exchange rate and mitigate the impact on inflation.

The expert warned that the weaker dong would do more harm to Vietnam, because it would slow the FDI inflow to Vietnam.

When the interest rate falls, the dong will become less attractive. The refinancing interest rate has been slashed to 5 percent, which is even lower than the inflation rate of 5.92 percent in the first two months of the year.

Though pressure on inflation is expected to decrease in upcoming months, the inflation rate in 2020 is expected to be above the targeted 4 percent.

Liu said this has had relatively big impact on the stock market, with foreign investors selling nearly $200 million worth of stocks from the beginning of the year to mid-March.

The disbursed FDI in the first two months of the year increased very slightly to $2.5 billion. Meanwhile, in current conditions, the FDI flow may continue to slow down.

If so, the dong would continue to be under pressure if foreign investors continue to sell more than buy and the FDI flow slows down.

Pham Thanh Ha, director of the Monetary Policy Department, said in 2019 and the first months of 2020, SBV bought a large amount of foreign currencies to supplement forex reserves.

Vietnam had a surplus of $1.82 billion in the first two months of the year and another trade surplus of $880 billion in March.

Le Ha 

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The official dong/dollar exchange rate announced by SBV reached a peak of VND23,206 per dollar on February 4, an increase of VND36 per dollar compared with the time before Tet.