Brokerage predicts VND to depreciate by 3% at most this year
The government is expected to intervene in the forex market to prevent a slump in the Vietnamese dong (VND)`s value, due to its potential negative impacts on the local economy.
VND could be depreciated by 3% at most against the USD in 2018, while in other scenarios the depreciation would be around 2%, according to a recent report by Bao Viet Securities Company (BVSC).
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According to the report, the VND is under pressure to devalue following sharp depreciations from other currencies in the Asian-Pacific region, such as Thai's bath (-3%), Indonesia's rupiah (-7%), India's rupee (-8%), South Korea's won (-5.6%) and China's yuan (-3.2%).
However, BVSC pointed out two reasons that the VND will not experience a slide in value in the final six months this year.
Firstly, the government's priority is to stabilize the macro-economy and minimize potential impacts from unexpected shocks. A sharp depreciation of VND, as a result, would affect the currency's value significantly, which contradicts the general approach taken by the State Bank of Vietnam (SBV) in the last three years and will lead to higher inflation.
Secondly, the Chinese yuan is unlikely to be depreciated more, which is currently around 6.69 yuan per one USD, due to concern over breaking the key psychological 6.70 level in the USD/CNY exchange rate and prompting an intervention from the Chinese government.
On July 3, Governor of the People's Bank of China (PBoC) Yi Gang reaffirmed the country will not use yuan devaluation as trade-war tactic against the US. Moreover, a sharp depreciation of the yuan could lead to a capital outflow and China being accused as currency manipulator by the US.
A halt in yuan depreciation, thus, would ease pressure on the VND, according to the brokerage.
In a move to stabilize the USD/VND exchange rate, the SBV on July 3 decided to lower the selling price of USD by 1% or VND244 (US$0.011) to VND23,050, which is VND264 lower than the ceiling level of the reference rate.
Following SBV's intervention, market participants can now purchase USD at a lower price, as the USD/VND exchange rate quoted by commercial banks decreased to under VND23,100 instead of VND23,120 on July 3.
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