Shocking exchange rate increase, State Bank temporarily "restrains"

Shocking exchange rate increase due to interest rate cut

On September 20, the State Bank organized the Bank - Enterprise Connection Conference in Hanoi.

Representatives of some businesses said that every time the interest rate decreases, the exchange rate increases, directly affecting businesses, especially import businesses. Businesses requested that the authorities take appropriate measures to stabilize the exchange rate.

Businesses’ concerns are well-founded. Since the beginning of 2023, the banking industry has been making efforts to reduce deposit interest rates, thereby reducing lending interest rates to support businesses. However, the “side effect” of this move is that the exchange rate has increased sharply.

State Bank of Vietnam's shock increase in diamond price 1 — The USD/VND exchange rate has increased dramatically, but currently, the State Bank is temporarily "restraining" it successfully. Illustrative photo

By September 19, the exchange rate reached its “peak”. The selling price of USD had surpassed the 24,500 VND/USD mark. In particular, Orient Commercial Joint Stock Bank (OCB) listed the highest selling price on the market, nearly reaching 24,700 VND/USD.

At the end of September 19, the USD/VND exchange rate at OCB was traded at: 24,223 VND/USD - 24,693 VND/USD. Compared to December 31, 2022, the exchange rate at OCB increased by 878 VND/USD for buying, equivalent to 3.76% and increased by 693 VND/USD for selling, equivalent to 2.89%.

This increase has put pressure on import businesses, thereby causing import prices and, as a result, selling prices to increase, which could lead to increased inflation.

State Bank Governor Nguyen Thi Hong said that the issue of exchange rates is a matter of great concern to many businesses. Exchange rates are also a part of the financial costs of businesses. Therefore, controlling exchange rates is as important as interest rates.

Responding to businesses at the Conference, the Governor of the State Bank said that when interest rates decrease, exchange rates naturally increase, that is from an economic perspective. Therefore, management must be harmonious and stable, which is the task of the State Bank.

“At a recent meeting, I also said that exchange rate management must be based on the overall economy. An increase in exchange rate is beneficial for export enterprises, however, our domestic production depends heavily on imports. The import/GDP ratio is nearly 100%. Thus, when the exchange rate increases, import enterprises will face difficulties. Therefore, this is a difficult problem,” Governor Nguyen Thi Hong shared.

Ms. Hong also affirmed that the State Bank is currently closely monitoring the exchange rate, daily and hourly, to be able to manage it appropriately.

One of the most important news of the global market in September was the "locking" of the USD interest rate by the US Federal Reserve (FED) in the meeting held on September 20.

Accordingly, as predicted, the FED temporarily “paused” and did not raise interest rates this time, but the USD interest rate remained at a 22-year high. At the same time, the FED “promised” there would be another increase this year.

The dollar hit a fresh peak on Thursday, its highest against the yen since November, following the news. The dollar index, which measures the currency against a basket of rivals, rose as high as 105.59 on Thursday, its highest since March 9.

The index rose for a ninth straight week last week, its longest winning streak in nearly a decade as resilient US growth fueled a recovery in the dollar.

Meanwhile, the pound fell to a fresh multi-month low after a surprisingly weak inflation report on Wednesday. The euro was down more than 0.2% at $1.0632.

The dollar index peaked after the FED kept the USD interest rate at a 22-year high. However, in the domestic market, the USD/VND exchange rate turned to decline significantly, falling from 50 VND/USD to 80 VND/USD.

By the morning of September 22, the USD/VND exchange rate began to move up but the fluctuations were much lower than in recent sessions.

At OCB, the listed exchange rate is at 24,148 VND/USD - 24,613 VND/USD, unchanged from the end of yesterday.

Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank) adjusted the USD price up by 10 VND/USD in both buying and selling prices to 24,130 VND/USD - 24,470 VND/USD.

The exchange rate is temporarily controlled thanks to the "money withdrawal" move of the State Bank.

On September 21, the State Bank announced the issuance of VND9,995 billion worth of 28-day treasury bills with a winning interest rate of 0.69%/year. Notably, this is the first session that the State Bank has resumed the forward sale service after more than 6 months of suspension (from March 10, 2023).

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