State Bank of Vietnam seeks opinions on removing the basis for determining the ceiling on the term exchange rate of VND to USD

The State Bank of Vietnam is drafting a Circular to amend and supplement Clause 3, Article 5 of Circular No. 02 dated March 31, 2021, issued by the Governor of the State Bank of Vietnam, guiding foreign exchange transactions on the foreign exchange market of credit institutions licensed to conduct foreign exchange operations.

Accordingly, in the past and expected future, in the context of rapid and unpredictable changes in the international market, especially the USD target interest rate announced by the US Federal Reserve (Fed), market conditions, exchange rate levels, and the difference between domestic and international interest rates have undergone rapid and unpredictable changes.

In some periods (2022), the narrowing of the VND and USD interest rate differential (increasing USD interest rates and decreasing VND refinancing rates) has limited the room for the market to determine the USD/VND forward rate, which may affect market liquidity.

The detailed regulations on operational issues that are easily changed according to market developments (such as policy regulations on forward exchange rates and the basis for determining the ceiling on forward exchange rates) in Circular 02 may limit the SBV's ability to respond to market fluctuations.

Therefore, in order to maintain flexibility and proactiveness in management and create more favorable conditions for market operations, the State Bank has reviewed and amended Clause 3, Article 5 of Circular 02/2021/TT-NHNN.

The proposed revised content is "The forward exchange rate between VND and USD in forward transactions and forward transactions in swap transactions is agreed upon by the parties involved in the transaction and in accordance with the regulations issued by the State Bank of Vietnam from time to time".

Accordingly, the basis for determining the forward exchange rate between VND and USD in forward transactions and forward transactions in swap transactions will not be specifically regulated but will be issued by the Governor from time to time.

This amendment and supplement aims to increase flexibility and proactiveness in managing monetary and exchange rate policies in response to changes in domestic and international market conditions, while also being consistent with the same principles as the central exchange rate and exchange rate band as stipulated in the Decisions issued by the Governor from time to time.

Clause 3, Article 5 of the current Circular 02/2021/TT-NHNN stipulates:

The forward exchange rate between VND and USD in forward transactions and forward transactions in swap transactions is agreed upon by the parties involved in the transaction but does not exceed the exchange rate determined on the basis of:

1. a) The spot exchange rate on the trading day;
2. b) The difference between the two current interest rates is the refinancing rate announced by the State Bank of Vietnam and the target USD interest rate of the US Federal Reserve (Fed). If the target USD interest rate falls within a range, the lowest interest rate within that range will be applied.
3. c) Term of transaction.

Source: https://www.nguoiduatin.vn/nhnn-lay-y-kien-bo-co-so-xac-dinh-muc-tran-ti-gia-ky-han-vnd-voi-usd-a655375.html