Expert: Need to maintain reasonable foreign exchange to intervene in exchange rates, stabilize the market - Lang Son Newspaper: Latest, accurate, reputable news

Experts say that the pressure on exchange rates will continue to increase this November. At its peak, the VND may even depreciate by 5%, with the exchange rate at banks approaching 26,000 VND/USD.

Exchange rates fluctuate strongly. (Photo: Vietnam+)

The VND/USD exchange rate has been “surging” again since early October, especially after former President Donald Trump was re-elected. Experts believe that the possibility of the USD strengthening after Donald Trump returns to the White House could put considerable pressure on the management agency in managing exchange rate policy.

Exchange rate fluctuates strongly

The “escalation” of the exchange rate has caused commercial banks to continuously adjust the USD price. Specifically, the central exchange rate and the exchange rate at commercial banks have increased sharply since November 6 (the day the vote count was completed and the final results between Republican candidate Donald Trump and Democratic candidate Kamala Harris were announced), from VND24,258 (November 6) to VND24,298/USD (November 15), an increase of VND40.

At the Joint Stock Commercial Bank for Foreign Trade of Vietnam ( Vietcombank ), the listed USD price is 25,160 VND/USD (buy) and 25,512 VND/USD (sell), an increase of 52 VND/USD compared to November 6. Up to now, the USD price has increased by about 4.4% compared to the beginning of 2024.

In the world market, the Dollar Index (DXY) - showing the performance of the USD against 6 major currencies (EUR, JPY, GBP, CAD, SEK, CHF), reached 106.89, up 0.49%.

Experts say that after President Donald Trump was re-elected, the Fed made its second consecutive interest rate cut on November 7 by 25 basis points (0.25%), which should have caused the USD to depreciate, but instead it increased again.

The Fed previously cut interest rates for the first time in September 2024 by 50 basis points (0.5%). However, Mr. Trump's re-election could affect the future monetary policy outlook. His proposals for expansionary fiscal policy and tariffs could increase inflation, thereby affecting the Fed's interest rate decisions in the future.

These changes have affected the USD/VND exchange rate, as the USD is likely to appreciate against the VND, affecting import-export activities and investment capital flows in Vietnam.

In fact, since the beginning of the year, the USD/VND exchange rate has fluctuated very strongly. In the first half of the year, the USD/VND exchange rate was quite tense, at times increasing by nearly 5%, and at times in the free market it exceeded 26,000 VND/USD.

In the second half of the third quarter of 2024, the USD/VND exchange rate cooled down before the Fed cut interest rates and only increased by 1.3% at the end of September 2024.

Many businesses with USD loans recorded deep exchange rate losses in the first half of the year, such as: Vietnam Airlines suffered an exchange rate loss of up to VND1,224 billion with a total USD loan equivalent to VND6,117 billion in the first half of this year. Similarly, Novaland lost VND834 billion, Mobile World lost VND146 billion and Hoa Phat Group was no exception with a loss of VND229 billion.

Financial expert Dinh Trong Thinh analyzed that the increase in exchange rate is beneficial for export enterprises because they collect revenue in USD, but these enterprises themselves do not benefit much from the increase in exchange rate, because most of the machinery, equipment and raw materials for export production must be imported and paid for in USD, so when the exchange rate increases, the price of raw materials will also increase.

From a business perspective, Mr. Bui Tien Vinh - Chairman of the Board of Directors of Vietnam Pharmaceutical and Food Joint Stock Company shared that in the context of the high USD price, in the short term, export enterprises will benefit. However, in the long term, this will not be good for enterprises because many factors are affected.

What will the exchange rate be like between now and the end of the year?

Experts believe that the exchange rate will continue to increase from now until the end of the year due to the combined impact of the Fed's expectation of maintaining long-term interest rates, the demand for USD in trade, and the role of USD as a safe haven asset. This is the reason why the USD/VND exchange rate has not been able to cool down as expected, despite the Fed's move to reduce interest rates.

Associate Professor Dr. Nguyen Huu Huan - Head of the Financial Market Department, Ho Chi Minh City University of Economics, said that the pressure on exchange rates will still increase this November. At its peak, the VND may even depreciate by 5%, with the exchange rate at banks approaching 26,000 VND/USD.

The increase in exchange rate affects import-export businesses. (Photo: Vietnam+)

“Not to mention external factors, the fact that businesses often increase imports of goods to serve production and consumption needs at the end of the year due to seasonal factors and the State Treasury increasing purchases by up to 1 billion USD in just 1 month is enough to put pressure on the exchange rate,” Mr. Huan said.

Experts say that the demand for foreign currency will increase sharply towards the end of the year to prepare for the new year's production cycle. There are certain concerns at present, but they can be controlled if other factors do not fluctuate too strongly.

To stabilize the USD/VND exchange rate in the current context, expert Dinh Trong Thinh said that the State Bank needs to maintain foreign exchange reserves at a reasonable level to be able to intervene in the market promptly when necessary. In particular, the State Bank should continue to adjust the central exchange rate flexibly to ensure that it is close to the exchange rate on the free market to avoid exchange rate speculation, more closely reflecting fluctuations in the international market, thereby helping to maintain investor confidence.

In addition, strengthen coordination between monetary and fiscal policies to support sustainable economic development, avoid hot growth that can lead to inflation. If necessary, sell USD from foreign exchange reserves to help adjust supply and demand and stabilize exchange rates.

In addition, to support businesses and people to overcome difficulties caused by exchange rate fluctuations, the State Bank can implement preferential credit support programs for businesses, especially export and import businesses directly affected by these fluctuations. Allowing businesses to borrow capital at lower interest rates in the short term will help them reduce cost pressures.

At the question-and-answer session with delegate Tran Anh Tuan (Ho Chi Minh City National Assembly Delegation) on solutions to stabilize exchange rates and further reduce interest rates, Governor of the State Bank Nguyen Thi Hong said that the State Bank will closely monitor market developments and, in case of large fluctuations in exchange rates, will promptly intervene to sell foreign currency. Regarding interest rates, the State Bank will consider carefully because if interest rates are reduced too much, it will increase exchange rates and affect foreign investment flows.

According to the Governor, the Fed's interest rate cut at first glance seems to reduce pressure on the exchange rate. However, the exchange rate and the domestic foreign exchange market are affected by many factors, not only the Fed's interest rate, but also the real supply and demand of foreign currency in the economy. If exports improve and FDI attraction increases, supply will improve and exchange rate management will be favorable. However, if exports are difficult, there is no output, or when import demand increases, the exchange rate will be under pressure. That is not to mention the psychological factors of expectation, speculation, and hoarding.

"The State Bank remains steadfast in its management goal of stabilizing the value of VND. Accordingly, it combines interest rate and exchange rate policies to make VND more attractive, encouraging people to convert foreign currencies into VND. Therefore, although the State Bank strives to reduce interest rates, it also determines that it must harmonize the goals, because if interest rates are reduced too much, it will affect the exchange rate and the foreign exchange market," the Governor emphasized./.

Source: https://baolangson.vn/chuyen-gia-can-duy-tri-ngoai-hoi-hop-ly-de-can-thiep-ty-gia-on-dinh-thi-truong-5028617.html