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The surprising effects of the exchange rate

The surprising effects of the exchange rate

Tuesday 10, 03 2020
The FED cutting interest rates has made the USD on the world market decreased sharply, thereby easing the pressure on the domestic exchange rate.

Exchange rate declines

After peaking on February 24-25, the central exchange rate has been continuously reduced by the operator since February 26. The last session of the week was the 8th session in a row that the central rate was adjusted downward with a decrease of 6 VND / USD.

Generally, in these 8 sessions, the central exchange rate has decreased by a total of 46 VND / USD, from 23,243 VND / USD to 23,197 VND / USD, equivalent to a decrease of nearly 0.2%. Therefore, compared to the end of 2019, the central exchange rate has increased by only VND 42, equivalent to an increase of about 0.18%. With a range of +/- 3%, the current ceiling rate is 23,893 VND / USD, while the floor rate is 23,914 VND / USD.

By the end of last week, the State Bank of Vietnam has listed the selling price of the greenback at 23,843 VND / USD, 50 VND lower than the ceiling exchange rate; meanwhile, the buying price was still stable at 23,175 VND / USD.

The USD buying and selling prices at banks have also been continuously adjusted downward in recent sessions at the central exchange rate.

Last week, the purchase price of the greenback of banks only revolved around VND 23,120, down VND 60 from February 25; while the selling price decreased by VND 70 to around VND 23,270. Compared to the end of 2019, the price of buying and selling USD of banks is only about 40 VND higher, equivalent to an increase of about 0.17%.

The reason for the decline in the domestic exchange rate in recent sessions is that the USD in the world market has also dropped sharply in the expectation that the FED will continue to lower interest rates to support the economy against the COVID-19 epidemic.

The decline of the USD was further strengthened after the Fed unexpectedly and sharply cut interest rates to 50 basis points to 1-1.25% overnight on March 3 and further cuts are expected at the policy meeting that will take place on 17th March.

The surprising effects of the exchange rate

According to the General Statistics Office, a financial expert analyzed, the trade balance saw a deficit of nearly 200 million USD in the first 2 months of this year, while the disbursement of FDI also decreased by 5% compared to the same period last year as it reached only 2.5 billion USD, and the FII capital even decreased by 84% to only 827 million USD, etc.

The supply of foreign currencies was limited, while the strong appreciation of the USD in the first month of the year put great pressure on the domestic exchange rate. Now that pressure has been removed due to the sharp decrease of the USD, "he said.

Narrowing the gap with CNY

Notably, the decline of the domestic exchange rate has not kept pace with the pace of USD recently. Indeed, after a 2.5-year peak of 99.86 points on February 20, the US dollar index dropped sharply continuously in anticipation of the FED's interest rate cut.

Currently, the US dollar index has dropped to around 96.25 points, or 3.6% lower than the peak set on February 20th. Meanwhile, as analyzed above, during this period, the domestic exchange rate only increased by nearly 0.2%. Obviously, the SBV's consistent and prudent management of monetary and exchange rate policies has helped the monetary market - the domestic exchange rate to be stable while facing the adverse effects of the COVID-19 epidemic.

Ngo Dang Khoa - Director of Foreign Exchange and Capital Market of HSBC Vietnam - said the USD / VND pair cooled down following the global trend, while interbank interest rates continued to be stable at relatively low ground thanks to abundant market liquidity. "The maintenance of exchange rate stability has been invisible to the VND, helping to close the gap with regional currencies, especially the Yuan (CNY)", Mr. Khoa emphasized.

>> Vietnam’s banking industry affected by COVID-19​

Source: https://cafef.vn/

Categories
Banking & Finance

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