Going strong: A vendor counting dong banknotes in Vietnam. A stronger dong will reduce the local-currency value of the government’s external debt. — Bloomberg.
HANOI: Amid fluctuations in the global financial market, the exchange rate in Vietnam has remained stable in the first four months of this year, and the Vietnamese dong is considered one of the most stable currencies in Asia, according to experts.
Market analysis reports released by Mirae Asset Securities Vietnam showed that in April, the US dollar/dong exchange rate dropped 0.2% and the average exchange rate hovered around 23,500 dong (RM4.47) per US dollar during the month. The rate has remained stable throughout the January to April period.
The United Overseas Bank (UOB) rated the Vietnamese dong as one of the most stable currencies in Asia, despite significant changes in the Fed’s interest rate hike expectations as well as concerns about a global recession and instability of the US banking system.
Mirae Asset noted that the State Bank of Vietnam (SBV) had bought a large volume of foreign currency in the first four months, raising the foreign exchange reserves to around US$90bil (RM401.6bil).
Dao Xuan Tuan, head of the foreign exchange management department under the SBV, said that since the end of 2022, the foreign exchange market has developed positively and gradually become stable.
The US dollar/dong exchange rate tends to decrease and stabilise again, he said, adding that the recovery of the Vietnamese currency against the US dollar since December 2022 was similar to that of many other currencies in the region such as the Japanese yen, Chinese yuan, the won of South Korea and the Thai baht.
Tuan said that the increase in foreign currency supply had enabled the SBV to buy more foreign currencies for the foreign exchange reserves.
In the first four months of this year, the SBV bought nearly U$4.9bil (RM21.8bil) from credit institutions, up about US$1bil (RM4.46bil) from the amount recorded at the end of the first quarter of 2023.
Experts from VNDirect forecast that Vietnam’s foreign exchange (forex) reserves would recover to reach US$102bil (RM455.2bil) by the end of this year.
Meanwhile, Moody’s Investor Service has forecast that Vietnam’s foreign exchange reserves, excluding gold, would rebound to U$95bil (RM424bil) by the end of the year as the SBV rebuilds its stockpile.
Nishad Majumdar, an analyst in Singapore, held that the recent appreciation of the dong, which reflects the improved external position, will give the central bank space to rebuild the forex buffers that were spent down during the US dollar’s rally last year.
Vietnam’s reserves stood at US$88.3bil (RM394bil) in January, according to the International Monetary Fund.
Majumdar held that the recovery in tourism and steady foreign direct investment inflows will help boost the nation’s reserves even as exports weaken.
The dong has advanced 6% in the past six months, joining a rally in Asian peers, as the US dollar has weakened.
He recommended that Vietnam prioritise exchange rate stability as a means to stabilise inflation and create certainty for inbound investors.
A stronger dong reduces the local-currency value of the government’s external debt, which still accounts for about a third of overall government borrowing, he said.
It will also likely mitigate the impact of higher import and manufacturing input costs into domestic inflation, giving the authorities further space to pursue a more accommodative monetary policy, the expert added. — Viet Nam News/ANN
