Resilient dong forecast to devalue less than 3pct in 2019

03-Jan-2019 Intellasia | Hanoi Times | 6:00 AM Print This Post

The dong has been quite resilient against the volatile Chinese renminbi, especially in comparison with regional currencies.

After being one of the most stable currencies on Asia in 2018, the dong is expected to devalue less than 3 percent this year as pressure wanes, according to analysts.

Outstanding stability in 2018

Thanks to the country’s favourable macro-economic performance and flexible forex management of the State Bank of Vietnam (SBV), the country’s central bank, the dong was one of the steadiest currencies in Asia last year.

The benchmark mid-point USD/VND rate set daily by the SBV ended up 2018 rising 1.87 percent from the start of the year, standing at 22,825 on the last trading day.

Meanwhile, the price of the greenback quoted by local commercial banks was VND23,155 for bid and VND23,245 for ask, up VND500 per dollar from end-2017, rising 2.19 percent.

Compared to the dong, Asian peers devaluated at a faster pace, by 5-7 percent on average, according to CEO of HSBC Vietnam Pham Hong Hai. For example, the Korean won lost 5.07 percent in value last year, the Filipino peso depreciated 4.99 percent while the Indian rupiah devalued 9.58 percent and the Chinese renminbi dropped 6.43 percent.

Despite global uncertainties stemming from rising trade protectionism and monetary policy tightening, Vietnam’s economy expanded 7.08 percent in 2018, the highest rate since 2007, and inflation reached 3.54 percent, far below the initial target of 4 percent. The country enjoyed a trade surplus of $7.2 billion and received $19.1 billion in actual foreign direct investment, up 9.1 percent year-on-year.

Based on statistics, Hanoi-based Vietcombank Securities said in a macro report last month that the dong has been quite resilient against the volatile Chinese renminbi, especially in comparison with regional currencies.

Narrow volatility

Pham Hong Hai reckoned that the US Federal Reserve would soon complete its rate normalisation process and is likely to make just two interest rate hikes in 2019, thus the strengthening of the US dollar against other currencies would end.

As a result, pressure on the USD/VND rate would become subdued and the VND will return to fluctuate in a narrow band, unless the Chinese renminbi experiences wild fluctuations, Hai said.

Sharing the same view, the National Financial Supervisory Commission, the Vietnamese government’s financial watchdog, said the USD/VND rate will likely undergo lesser pressure this year as the greenback won’t strengthen much or even weaken. In addition, inflation in Vietnam will be curbed at 4 percent because of tamed global commodity prices.

Vietcombank Securities acknowledged that pressure on the dong may come from continued monetary tightening globally and the unpredictable renminbi.

However, domestically, the forex supply remains ample thanks to foreign-involved share sales and positive FDI disbursement. The benchmark mid-point USD/VND rate is expected to weaken by no more than 3 percent to ensure a stable business environment, the brokerage said.


Category: Finance, Vietnam

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