Vietnam’s Central Bank adopts new FX methodology

HANOI - The State Bank of Vietnam (SBV) has adopted a new FX methodology, starting today, under which it will set a daily USD/VND reference rate. According to SBV, the daily rate will take into account movements in major foreign currencies that are relevant to Vietnam’s trade and investment activities, as well as domestic and international money-market developments.

ANZ Bank says that while it needs to observe the situation further, it believes the new methodology will allow for more frequent yet smaller adjustments in the VND. “Given Vietnam’s current account deficit and our expectation of USD strength, we see downside risk for the VND particularly in the near term,” ANZ says.
“Indeed, the SBV raised the USD/VND reference rate today to 21,896 from 21,890 while keeping the +/-3% trading band. The currency adjustment did not come as a surprise though the new methodology is a significant change, following the US$3.2 billion trade deficit in 2015.
“We remain of the view that a minor current account deficit need not be painful, especially now that the currency is allowed more flexibility in reflecting the reality of country’s external payments.
“For now, we maintain our end-2016 USD/VND forecast at 23,450, or 4% VND depreciation for the year, with risk skewed to VND weakness.” www.live.anz.com (ATI).