Difficulties and challenges of the domestic foreign exchange market are only short-term.

DNVN - Mr. Pham Chi Quang - Director of the Monetary Policy Department said that 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. However, all difficulties and challenges of the domestic foreign exchange market are only short-term.

Assessing the pressure on exchange rates and the foreign exchange market, Mr. Pham Chi Quang - Director of the Monetary Policy Department said that the State Bank of Vietnam (SBV) believes that since the beginning of 2024, the domestic foreign exchange market and exchange rates have been under pressure from unpredictable fluctuations in the global financial market, combined with challenges and difficulties in the domestic market in recent times.

Inflation remains high in the US, causing the international market to continuously adjust forecasts and delay the expected date for the US Federal Reserve (Fed) to cut interest rates. The market's changing expectations about the path of monetary policy (CSTT), the Fed's interest rate cut, along with increasing geopolitical tensions in some territories, have 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.

Mr. Pham Chi Quang - Director of Monetary Policy Department emphasized that the State Bank will operate exchange rates flexibly, in accordance with market developments.

Along with that, the economy 's import activities recovered strongly, estimated at 132.23 billion USD, an increase of 19.7 billion USD (up 17.5%) over the same period in 2023. This increased the demand for foreign currency, especially the demand for foreign currency to pay for the import of essential raw materials for domestic production.

In particular, the US continues to keep USD interest rates high, while VND interest rates are lower than international USD interest rates (negative interest rate differential between the two currencies), which has made the balance of foreign currency supply and demand less favorable in the short term and put pressure on the exchange rate. Economic organizations promote the purchase of foreign currency for future payments, while customers with foreign currency income have a tendency to delay selling foreign currency to credit institutions.

“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. However, all difficulties and challenges of the domestic foreign exchange market are only short-term,” Mr. Quang commented.

According to the Director of the Monetary Policy Department, in the coming time, with the positive recovery of exports, the market's foreign currency supply will be supported to increase. Enterprises have increased their purchases of foreign currency for a long time, which 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 be improved more positively.

At the same time, the international financial community maintains its forecast that the Fed will likely cut interest rates by the end of 2024, which will reduce devaluation pressure on currencies around the world , including VND.

Based on domestic and foreign fundamental factors, many international organizations predict the possibility of VND appreciation again when these fundamental factors are gradually realized in the coming time.

Mr. Quang affirmed that over the past time, the State Bank has flexibly and synchronously operated monetary policy solutions and tools to closely follow market developments. That is, operating exchange rates flexibly, in accordance with market conditions, absorbing external shocks.

To support the stabilization of the foreign exchange market, ease pressure on the exchange rate in the context of relatively excess VND liquidity of credit institutions, and narrow the negative interest rate gap in the interbank market, the State Bank of Vietnam has issued treasury bills with appropriate terms and volumes to regulate the excess VND, limiting factors that increase pressure on the exchange rate.

The State Bank of Vietnam has sold foreign currency to support market liquidity to serve the legitimate foreign currency needs of the economy. Stabilizing market sentiment, thereby contributing to stabilizing the macro economy and controlling inflation.

The solutions to regulate liquidity and sell foreign currency intervention implemented by the State Bank are similar to the solutions deployed by central banks in the region in recent times.

“In the coming time, the State Bank will operate exchange rates flexibly, in accordance with market developments. The bank will continue to synchronously combine monetary policy tools with foreign currency sales to support market liquidity, serving the legitimate foreign currency needs of the economy,” said Mr. Quang.

Ha Anh

Source: https://doanhnghiepvn.vn/kinh-te/tai-chinh-ngan-hang/kho-khan-thach-thuc-cua-thi-truong-ngoai-te-trong-nuoc-chi-la-ngan-han/20240525094622042