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| Mr. Pham Chi Quang, Director of Monetary Policy Department, State Bank of Vietnam . (Photo: TT) |
That was the sharing of Mr. Pham Chi Quang, Director of the Monetary Policy Department, State Bank of Vietnam when talking to the press about the pressure on exchange rates and the foreign exchange market in recent times.
Reporter : How do you assess the pressure on exchange rates and the foreign exchange market in 2024?
Mr. Pham Chi Quang: Since the beginning of 2024, the domestic foreign exchange market and exchange rate have been under pressure from unpredictable fluctuations in the global financial market, combined with challenges and difficulties in the domestic market in recent times; specifically as follows:
First of all, inflation remains high in the US, causing the international market to continuously adjust forecasts and postpone the expected date for the US Federal Reserve (Fed) to cut interest rates. The market's changing expectations about the path of monetary policy, the Fed's interest rate cut, along with increasing geopolitical tensions in some territories, caused the international USD to appreciate sharply, at one point the USD index (DXY) increased by 5% compared to the beginning of 2024, creating devaluation pressure on other currencies, including VND.
Second, from the beginning of the year to mid-May 2024, the economy 's imports recovered strongly - estimated at 132.23 billion USD, an increase of 19.7 billion USD (up 17.5%) over the same period in 2023, increasing the demand for foreign currency, especially the demand for foreign currency to pay for the import of essential raw materials for domestic production. However, the import of raw materials at the beginning of the year to serve the economic recovery process will create a premise to promote production and export activities, thereby creating foreign currency revenue in the future, which can relieve some of the pressure on exchange rates in the coming time.
Third, while the US continues to keep USD interest rates high, VND interest rates are lower than international USD interest rates (causing the interest rate differential between the two currencies to be negative), encouraging economic organizations to buy foreign currency forwards to serve future payments - transferring future foreign currency needs to the present; while customers with foreign currency income have the mentality of delaying the sale of foreign currency to the credit institution system, making the balance of foreign currency supply and demand less favorable in the short term and putting pressure on the exchange rate.
With the domestic and foreign economic context mentioned above, from the beginning of 2024 until now, VND has depreciated by about 5% compared to USD, similar to the depreciation trend of currencies in the region: Taiwan Dollar (-5.06%); Thai Baht (-6.31%); South Korean Won (-5.66%); Japanese Yen (-10.87%); Indonesian Rupiah (-3.87%); Philippine Peso (-4.82%); Chinese Yuan (-2.04%).
However, all the above difficulties and challenges of the domestic foreign exchange market are only short-term, because in the coming time, with the positive recovery momentum of exports, the market's foreign currency supply will be supported to increase, while the recent sharp increase in the purchase of foreign currency futures by enterprises is a factor that reduces the demand for foreign currency in the future, thereby the balance of foreign currency supply and demand is likely to improve more positively in the near future. At the same time, the international financial community maintains the view that the Fed is likely to cut interest rates by the end of 2024, thereby reducing the devaluation pressure on currencies around the world, including VND. Based on the fundamental factors at home and abroad as mentioned above, many international organizations forecast the possibility of VND appreciating again when these fundamental factors are gradually realized in the near future.
Reporter: In the face of the above pressure, what measures has the State Bank taken to stabilize the foreign exchange market and limit pressure on exchange rates? Recently, there have been some rumors about the State Bank's planned changes in exchange rate management measures. What is the State Bank's opinion on this information?
Mr. Pham Chi Quang: In the context of the above challenges and difficulties, implementing the direction of the Government and the Prime Minister on flexible, harmonious, reasonable and balanced management between interest rates and exchange rates, in accordance with the market situation, macroeconomic developments and monetary policy targets, the State Bank has recently flexibly and synchronously managed monetary policy solutions and tools closely following market developments. Firstly, the State Bank has flexibly managed exchange rates, in accordance with market conditions, absorbing external shocks. At the same time, to support the stabilization of the foreign exchange market, ease pressure on exchange rates in the context of relatively excess VND liquidity of credit institutions, and narrow the negative interest rate gap in the interbank market as mentioned above, the State Bank has issued treasury bills with appropriate terms and volumes to regulate the excess VND, limiting factors that increase pressure on exchange rates. Second, from April 19, 2024, the State Bank of Vietnam will sell foreign currency to intervene and support market liquidity to serve the legitimate foreign currency needs of the economy, while stabilizing market sentiment, thereby contributing to stabilizing the macro economy and controlling inflation.
The above solutions to regulate liquidity and sell foreign currency intervention implemented by the State Bank are similar to the solutions implemented by central banks in the region in recent times.
The recent depreciation of VND can be considered average compared to other currencies in the region and the world (as mentioned above). With the current mechanism of managing the central exchange rate and the +/-5% band, the market exchange rate has enough room for flexible movements. Therefore, some recent information about changes in the exchange rate management of the State Bank is inaccurate and inconsistent with the Government's goal of stabilizing the market and stabilizing the macro economy, creating an unstable psychology in the market. Therefore, businesses and people need to be cautious about rumors.
Reporter: With the above-mentioned challenges and difficulties in the international and domestic context, how does the State Bank plan to operate in the coming time?
Mr. Pham Chi Quang: Although the international situation is still challenging and unpredictable, with a solid macroeconomic and foreign affairs foundation and the Fed's plan to start cutting interest rates from the end of this year as mentioned above, the pressure on the exchange rate will be reduced. In the coming time, the State Bank will operate the exchange rate flexibly, in accordance with market developments through continuing to synchronously combine monetary policy tools with foreign currency sales to support market liquidity, thereby serving the legitimate foreign currency needs of the economy, contributing to stabilizing market sentiment, stabilizing the macro economy and controlling inflation.
Reporter: Thank you!
Source: https://dangcongsan.vn/kinh-te/can-thiep-de-on-dinh-ti-gia-665794.html
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