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More positive forecasts about exchange rate stability in 2020

08/06/2020

According to MBS, there is only negligible risk of strong depreciation of the Chinese yuan. As a result, the VND will only decline by 1-2% in 2020, mainly due to the increase in the demand to hold US dollars globally.

In the recent macroeconomic report, MBS Securities said that the VND/USD exchange rate was quite stable in May despite the volatile international market.

According to MBS, most currencies in Asia dropped in May. In particular, the yuan dropped sharply by 1.5% against the USD when the China's parliament, the National People's Congress, approved the new national security law for Hong Kong at the end of May. If the Trump administration removes Hong Kong's "special status", the yuan will likely continue its downward momentum.

However, with current foreign currency reserves of over USD 3 trillion, the Chinese government will proactively prevent a sharp decline in the yuan by intervening in the foreign exchange market.

In contrast to the strong devaluation of the yuan in May, the VND exchange rate was quite stable with VND 23,271/USD on the interbank market, down VND 77 (-0.33%) compared to the end of April.

On that basis, MBS believes that the VND will decline by 1-2% in 2020, mainly due to the increasing demand for holding USD globally.

Earlier, the analysis department of Bao Viet Securities Company (BVSC) also forecasted that VND would only depreciate by 1-2% in 2020.

According to BVSC, although it does not exclude the possibility that the increasing confrontation between the US and China may cause the CNY to depreciate further in the near future, it is likely that China will not allow the CNY to depreciate too strongly in a very short time.

Meanwhile, maintaining a stable exchange rate with a moderate reduction is still one of the top priorities in macroeconomic management of Vietnam.  The trade balance and balance of payment of Vietnam are also in surplus plus foreign currency reserves have increased, which are also factors that help VND to cope well against external fluctuations.

 

Kylie Nguyen

© 2019 Vietnam Bank for Agriculture and Rural Development No. 2 Lang Ha street, Ba Dinh district, Hanoi, Vietnam
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