Central bank looks to up foreign reserves

Hanoi (VNA) - The State Bank of Vietnam’s transaction centre this week raised the reference buying rate for the US dollar by 50 VND to 22,725 VND, revealing its intention to expand foreign reserves.

This is the third time this year it has increased the buying rate for the greenback. The first two hikes were made in January and April with a total increase of 100 VND.

With the rise, the value of the dollar against the dong listed at the SBV’s centre is some 70 VND higher than that of commercial banks.

On June 22, Vietcombank and BIDV maintained both buying and selling rates unchanged from the day ago at 22,690 VND and 22,760 VND.

The rates at Techcombank were 22,650 VND (buying) and 22,770 VND (selling), the same as those on June 21.

After increasing the daily reference dong/dollar exchange rate by 18 VND on the first three days of the week, the central bank on June 22 continuously adjusted the rate up by five dong from the previous day to 22,433 VND.

With the current trading band of /- 3 percent, the ceiling rate applied to commercial banks during the day was 23,105 VND and the floor rate was 21,760 USD per dollar.

According to analysts, the buying rate hike by the SBV’s transaction centre is aimed at encouraging commercial banks to buy dollars from the currency holders at higher prices. The banks will then sell dollars to SBV’s centre, helping the central bank expand its foreign reserves to prepare for any fluctuation that may occur if the US Federal Reserve (Fed) increases interest rates.

Last week, the Fed raised the interest rate by 0.25 percentage points. This was Fed’s third consecutive interest rate hike in six months. Surprisingly, following the Fed’s move, the domestic foreign currency market remained stable.

According to banking expert Can Van Luc, there were some reasons for this stability.

Apart from the fact that world financial markets witnessed no fluctuation, the SBV’s flexible central rate management mechanism helps the domestic foreign exchange market be less affected by foreign factors.

Besides this, the domestic supply-demand relationship of the dollar is relatively stable. The foreign currency supply from exports, FDI, ODA disbursement, tourism and remittances has grown positively in the first five months, Luc said.

Although there was no impact on the exchange rate following the Fed’s decision, experts said pressure on exchange rate is likely, which comes from both sides -- serious trade deficit and strong increase in foreign currency loans.

Ngo Dang Khoa, head of trading at HSBC Vietnam, told Dau tu (Vietnam Investment Review) that the trade balance runs a deficit of some 2.5 billion USD since the beginning of this year and is likely to expand to 7 billion USD at the end of the year, which will put certain pressure on the exchange rate at some point.

Khoa recommended that even in case activities are undertaken to prevent interest rate and exchange rate risks, businesses should still monitor the market and use reasonable risk prevention methods.-VNA