According to Moody’s Investor Service, Vietnam's foreign exchange reserves, excluding gold are forecast to rebound to USD 95 billion by the end of the year as the State Bank of Vietnam rebuilds its stockpile.

Nishad Majmudar, a sovereign analyst in Singapore, commented: “The recent appreciation of the dong, which reflects the improved external position, would give the central bank space to rebuild the FX buffers that were spent down during the US dollar’s rally last year,”.

According to the International Monetary Fund (IMF), Vietnam's foreign exchange reserves in January this year reached USD 88.3 billion.

Mr. Majumdar held that the recovery of the tourism industry and the steady flow of foreign direct investment will help increase national reserves even if exports weaken. The dong has advanced 6% in the past six months, joining a rally in Asian peers, as the USD has weakened.

“While we don’t forecast the exchange rate, we expect the authorities to prioritize exchange rate stability as a means to stabilize inflation and create certainty for inbound investors,” Majumdar said.

According to this expert, a strong domestic currency will reduce the local-currency value of the government’s external debt, which still accounts for about a third of overall government borrowing. This will also likely mitigate the impact of higher import and manufacturing input costs into domestic inflation, giving authorities further space to pursue more accommodative monetary policy, Majumdar said.

According to Nguyen Quoc Hung, General Secretary of the Vietnam Bankers Association, Vietnam's central bank has bought about USD 6 billion this year to boost reserves. This data was presented by State Bank Governor Nguyen Thi Hong during a meeting last week.

“With the purchase of USD 6 billion to add to foreign exchange reserves, the State Bank will have more capacity to ensure the supply of USD for banks to meet import demand. This is very significant for the economy,” Hung told Bloomberg.

Kylie Nguyen