After the weekend, The State Bank of Vietnam (SBV), in the morning of June 27th 2016, has announced the central exchange rate at 21,866 dong per US dollars, 21 dong higher than the closing rate of the last week (21,845 dong per US dollar). The ceiling exchange rate for commercial banks is 22,521 dong per US dollar while floor exchange rate is 21,210 dong per US dollar (fluctuation band +/-3 percent).
Thus, SBV has made the first reaction to Brexit by offering a fairly wide range for the market exchange rate. This also implies that SBV is ready to let the exchange rate fluctuate at a higher amplitude.
However, banks have responded cautiously. At the Commercial Joint Stock Bank for Foreign Trade of Vietnam (Vietcombank), the listed exchange rate is almost unchanged compared to the end of last week. Meanwhile, at the Vietnam Technological and Commercial Joint Stock Bank (Techcombank), US dollar buying price fell by 10 dong compared to last Friday while selling price only rose by 10 dong, reaching 22,380 dong per US dollar. This is the common rate at other banks. With this level, the current exchange rate has a relatively large distance from the ceiling level (141 dong difference).
Experts currently have different points of view about the development of exchange rate in the near future, as well as the impacts of Brexit. Some experts thought that the exchange rate should be soon adjusted. Specifically, the research team of Vietcombank Securities Company said that after being kept stable in the first half of the year, the Brexit issue could create significant fluctuations to the exchange rate.
In reverse direction, most experts believed that the reaction of the Vietnam market on the first day after Brexit was mainly due to psychological factor, especially for gold and exchange rate. Currently, while the foreign exchange reserves are at a moderate level, the trade balance is in surplus, SBV has applied a new exchange rate mechanism with the policy to maintain stability, efforts have been made to attract Foreign Direct Investment (FDI), and the business environment is in a reform, etc., the exchange rate could hardly experience a shocking rise.
Economic expert Dr Can Van Luc said that the Brexit’s impact on Vietnam is not very large, adding that the exchange rate would remain stable in the near future, because the supply and demand will still be guaranteed. According to Dr Luc, the good news is that since SBV is operating the exchange rate according to a basket of currencies rather than tying it to the US dollar, there could be rise and decline, but on overall, there will not be much changes.
Another factor which can help stabilise the exchange rate, according to Dr Luc, is the possibility that the US Federal Reserve (Fed) will not increase interest rates, at least in the third quarter of 2016. In fact, immediately when Brexit happened, many experienced analysts said that Fed would even cut interest rates.
Nevertheless, in the depreciation trend of the British pound and the euro, and the appreciation trend of the Japanese yen and the US dollar, Dr Luc recommended SBV to closely monitor the movements of the major currencies in the world to make appropriate adjustment.
Analysis of financial and commercial experts showed that Brexit issue will just indirectly affect Vietnam. However, the situation will become more complicated if other countries follow the UK to leave the European Union, particularly if China devaluates the Chinese yuan. In this context, a further devaluation of dong by SBV to support exports and create a flexible springboard for exchange rate adjustment is necessary.
From the beginning of the year, the exchange rate movements in the domestic have been fairly stable. The central exchange rate listed on June 27th 2016 (21,866 dong per US dollar) was even lower than the average interbank exchange rate listed at the end of 2015 (21,890 dong per US dollar).
Source : http://www.intellasia.net
Keyword : Commercial banks, cautiously raise exchange rate, after Brexit.
