Foreign exchange rate forecast not to be under great pressure as in 2022

A bank teller counts dollars at a transaction office in Hà Nội. — Photo thoibaotaichinhvietnam.vn

HÀ NỘI — The foreign exchange rate has significantly fluctuated recently but experts forecast the rate in the remaining months of 2023 will not be under great pressure as in 2022.

The foreign exchange market in September and October 2022 was under huge pressure in the wake of global uncertainties. Under this context, the State Bank of Vietnam (SBV) had to increase the selling price of the US dollar six times within just two months (from September to November 2022), with a total increase of VNĐ1,720, equivalent to 7.4 per cent.

This year, the dollar has recently also skyrocketed against the Vietnamese đồng to exceed the threshold of VNĐ24,000 per dollar. Vietcombank on Tuesday listed the selling rate at VNĐ24,240 while the rate at BIDV was VNĐ24,230.

According to Trần Ngọc Báu, CEO of financial data provider WiGroup, the recent exchange rate shock is due to the rising dollar need of firms to pay some contracts. It is not because of a capital withdrawal out of Việt Nam.

In addition, psychological factors also contribute to the recent volatility of the exchange rate as people are concerned that the scenario of September and October of 2022 will repeat.

However, Báu said the context in 2022 and this year is quite different.

Báu explained the current context is completely different from the end of 2022 when the dollar was actually withdrawn out of Việt Nam due to fear of a chain breakdown. Currently, the Vietnamese banking system is much more stable and there is no withdrawal of capital.

Moreover, the current account balance is relatively strong, while it is forecast the overall balance this year will also have a slight surplus. Meanwhile, at the end of 2022, the current account was relatively weak as service exports didn’t recover and export surplus was weak, Báu said.

Besides, Báu said, regarding the interest rate difference between Việt Nam and the US, the context is also completely different when last year the Fed raised interest rates strongly while under the current period, the Fed is going to the final stage of the interest rate hike cycle.

Inflation has also shown signs of increasing recently, but according to Báu, there is no basis for the indicator to exceed 3.5 per cent this year. This factor will provide good support for the SBV to continue its policy of supporting the economy.

From the analysis of exchange rates and inflation, Báu believes the SBV will not increase interest rate in the near future, but the interest rate level from now until the end of the year will be flat or slightly decrease, not falling sharply as in recent times.

There is not much room left to reduce interest rates so the SBV can only cut the rate by one or two more times. Instead of using the interest rate tool, the SBV will focus on opening up the money supply and credit, applying many supportive policies for the banking industry, and being soft in regulation to expand money supply and credit, Báu predicted.