Sunday,  Sep 23, 2018,23:23 (GMT+7) 0 0
HSBC: Forex rate stable, inflation under pressure
Minh Tam
Monday,  Mar 26, 2018,23:03 (GMT+7)

HSBC: Forex rate stable, inflation under pressure

Minh Tam

HCMC – As HSBC Vietnam projected, the Vietnam dong-U.S. dollar exchange rate will stay around VND22,900 per dollar this year, but inflation pressure will build up due to rising food and fuel prices.

Ngo Dang Khoa, an executive at HSBC, told a recent seminar on Vietnam’s 2018 economic prospects that the exchange rate between Vietnam dong and the greenback will stay at some VND22,900 per dollar, or VND200 higher than last year. This is attributed to capital flows into Vietnam remaining robust.

According to Khoa, substantial foreign reserves and U.S. dollar supplies of last year resulted from increasing foreign investment flows and mergers and acquisitions (M&A). Foreign direct investment (FDI) capital was US$13-14 billion, whereas M&A transactions brought in US$6 billion.

High capital inflows, in theory, will prompt the dong’s appreciation against the greenback. But since the Government wants to support export activities, the exchange rate will continue to be stable in the coming time and the local currency will even weaken against the U.S. dollar.

The exchange rate is to be stable this year though the U.S. Federal Reserve (Fed) is forecast to raise interest rates three times in the year. This is evidenced by the fact that the local market did not fluctuate considerably when the Fed hiked interest rates by 0.25% on March 22, according to Khoa.

There are many factors influencing M&A capital flows this year, including bright prospects of the economy and the Government’s determination to divest from State-owned enterprises (SOEs), offering high-value stakes to investors. The number of enterprises with State capital to be divested this year is 181, or 46 units higher than last year.

Capital divestment provides enterprises with a chance to restructure, increase labor productivity and boost business efficiency. It helps the State not only generate revenue but also cut subsidies, hence reducing public debts.

Regarding inflation, according to HSBC Vietnam, it will face pressure as prices of food, foodstuffs and fuels are likely to pick up. The prices of education and healthcare services may rise as well, but they can be managed by the State.

Khoa predicted that the annualized inflation may exceed 4% in June or July but drop to 3.7% towards the year-end.

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