Central bank resumes dollar purchases to build up foreign reserve
Central bank resumes dollar purchases to build up foreign reserve
The State Bank of Viet Nam (SBV) has resumed the purchase of US dollars from commercial banks after a six month break thanks to favourable conditions in the country’s foreign exchange market.
On Monday, SBV’s Operations Centre net bought some US$200 million from commercial banks on the inter-bank market in a move to build up the country’s foreign reserve.
The purchase followed a recent move by the SBV centre to adjust up its buying rate of the dollar against the dong by VND500 to VND23,200 per dollar, making its rate VND40-65 per dollar higher than that of commercial banks.
On Tuesday, commercial banks kept their dollar prices stable. Vietcombank and BIDV posted VND23,155 and VND23,245 per dollar buying and selling rates, unchanged from the previous day.
The buying and selling rates at Techcombank were VND23,135 and VND23,245 per dollar, also unchanged from the day before.
On Tuesday, SBV set the daily reference exchange rate at VND22,827 per dollar, down VND2 from the previous day. With the current trading band of +/- 3 per cent, commercial banks were allowed to list the dollar at a ceiling rate of VND23,511 and a floor rate of VND22,143.
According to a report from the Military Bank Securities Company (MBS), thanks to the purchase of some US$11 billion mainly in the first half of 2018, the country’s foreign reserve was built up and maintained at a relatively high level of US$63.5 billion last year, helping the central bank stabilise the foreign exchange rate.
MBS analysts expect the central bank is capable of managing the foreign exchange rate to keep it within the margin of safety in 2019, given by the country’s abundant dollar supply and stable macro-economic balance.
In addition, the analysts said, SBV’s current zero per cent interest rate on dollar deposits encourages dollar holders to exchange their money into dong to get higher profits, helping the central bank manage the forex market. The gap between interest rates of the dong and the dollar remained high. The rate for dollar deposits is zero per cent while the rate for the dong is 7-8.5 per cent per year so dollar holders will still make less profit than if they deposit dong in local banks.
MBS says the dollar likely reached its peak in 2018 and will inch down in 2019. The US Federal Reserve (Fed) will likely only raise interest rates once in 2019 instead of the four times it did so in 2018.
The reduction, together with the country’s trade surplus of US$7.2 billion last year, would help reduce pressure on the exchange rate in the domestic market this year, MBS analysts said. They anticipate SBV will depreciate the dong by some 1.5-2 per cent this year to support the Government’s targets of increasing exports and stabilising macro-economic indicators.
Speaking on the country’s foreign exchange rate policy this year, SBV Deputy Governor Nguyen Thi Hong affirmed the central bank would continue its flexible management of the exchange rate in line with the market situation, macro-economic balances and monetary policies.
