Recently, the exchange rate has experienced a lot of pressures due to both economic factors and some rumors affecting the market psychology and expectations. Mr. Pham Chi Quang, Director General of the Monetary Policy Department under the State Bank of Vietnam (SBV), gave an interview on this issue.
Operating monetary policy solutions and tools in a flexible and synchronous manner in accordance with the market developments
Reporter: How do you assess the pressures on the exchange rate and the foreign exchange market in 2024?
Mr. Pham Chi Quang: Since the beginning of 2024, the foreign exchange market and the exchange rate in Vietnam have been under pressures from the unpredictable fluctuations in the global financial market, plus the challenges in the domestic market recently, specially as follows:
First of all, the persistent high inflation rates in the USA has caused the international market to continuously adjust its forecasts and delay the expected time of the interest rate cuts by the US Federal Reserve System (Fed). The change in the market expectations about the monetary policy roadmap, the interest rate reduction by the Fed, along with the increasing geopolitical tensions in some areas, have all led to the depreciation pressures on many currencies, including the VND.
Secondly, from the beginning of the year to mid-May, the import sector has recovered strongly, estimated at USD 132.23 billion, an increase of USD 19.7 billion over the same period in 2023.
Thirdly, while the US has continued to maintain the USD interest rates at a high level, the VND interest rates are lower than the USD interest rates (causing a negative difference between the two currencies’ interest rates), driving economic organizations to buy foreign currencies to serve their future payments. Meanwhile, customers with foreign currency income have delayed selling them to the credit institutions, making the balance of foreign currency supply and demand unfavorable in the short term, putting more pressures on the exchange rate.
In the above context, since the beginning of 2024, the depreciation of the VND against the USD is estimated at about 5%, similar to the depreciation trends of other currencies, including: the Taiwan New Dollar (-5.06%); the Thai Baht (-6.31%); the Korean Won (-5.66%); the Japanese Yen (-10.87%), etc.
However, all of the above-mentioned difficulties and challenges in the domestic foreign exchange market are only short-term and several international organizations have predicted possibilities of the VND appreciation again in the coming time.
Reporter: Faced with the above pressure, what measures has the SBV taken to stabilize the foreign currency market and reduce the pressures on the exchange rate? Recently, there have been some rumors and expectations about the SBV's change in the measure of managing the exchange rate. What is the SBV's perspective of this information?
Mr. Pham Chi Quang: In the context of the challenges and difficulties mentioned above, the SBV has implemented the directions of the Government and the Prime Minister on flexible, harmonious and reasonable operations, balancing between the interest rates and the exchange rate in accordance with the market situation, the macroeconomic developments and the monetary policy goals. Firstly, the SBV has managed the exchange rate in a flexible manner, helping to improve the absorbability of shocks, in collaboration with the SBV bill issuance in order to decrease the VND liquidity surplus, thereby reducing the pressures on the exchange rate. Secondly, from April 19, 2024, the SBV has sold foreign currencies to support the market liquidity and serve the legitimate foreign currency demands, while stabilizing the market psychology, thereby contributing to stabilizing the macroeconomy and controlling the inflation
The depreciation of the VND against the USD is sill lower than that of other currencies (as mentioned above). With the current key exchange rate management mechanisms and a change of +/-5%, the market exchange rate has enough room for flexible developments. Therefore, some recent information about changes in the exchange rate management by the SBV is inaccurate and inconsistent with the Government's goal of stabilizing the market and the macroeconomy, creating psychological instability in the market. Therefore, the businesses and the people need to be cautious about this kind of rumors.
Reporter: In the challenging and difficult international and domestic contexts mentioned above, how does the SBV plan to operate in the coming time?
Mr. Pham Chi Quang: In the coming time, the SBV will continue to manage the exchange rate in a flexible manner, in accordance with market developments, by continuing to implementing synchronously the monetary policy tools and selling foreign currencies to support the market liquidity, thereby serving the economy's legitimate foreign currency demands, contributing to stabilizing the market
Reporter: Thank you very much!
HY