Vietnam's foreign exchange reserves will recover from the current level of US$90 billion to about $102 billion by the end of 2023, equivalent to 3.3 months' worth of imports, according to securities firm VNDIRECT.

Vietnam's foreign reserves may reach US$102 billion this year. Photo: Hai Linh

The brokerage’s report suggested the country’s foreign reserves are set to improve this year thanks to a stable exchange rate, high trade surplus, and positive current account.

In 2023, VNDIRECT forecasts Vietnam’s trade surplus may reach $13.4 billion, or an increase of $1 billion against last year, while the current account may shift from a deficit to a surplus at around 1.4% of the GDP.

During the first 10 months of 2022, the State Bank of Vietnam (SBV) was forced to sell an estimated 20% of total foreign exchange reserves to stabilize the exchange rate.

This resulted in the reduction of Vietnam’s foreign reserves below the IMF recommended threshold, or over 3-month worth of imports.

However, during the remainder of 2022 and early 2023, a slight depreciation of the US dollar has relieved pressure on the exchange rate. By the end of 2022, the US selling prices quoted by banks rose by 3% against the beginning of the year.

“This has allowed the central bank to shift its priority to stabilizing the policy rates to support businesses and the economy,” said VNDIRECT, noting the SBV may consider buying in foreign currency to boost the liquidity of Vietnamese Dong (VND) in the market and lower the interest rates.

Last December, the SBV announced that it may start purchasing foreign currencies following three months of selling.

Sharing the same view with VNDIRECT, Standard Chartered said building up the foreign reserves may become a top priority for the SBV this year.

In this regard, improving the current account and tourism recovery may support the VND.

Standard Chartered anticipated the USD/VND exchange rate may reach VND23,400 by late 2023, and VND23,000 by late 2024.

VNDIRECT, however, remains cautious that the USD Index may not fall well below the 100-mark and even on the rise in case Fed continues to hike the policy rates by 50-75 percentage points in the first half of 2023.

“The SBV may keep a cautious view on the management of the exchange rate, especially during the first six months,” noted the securities company.