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Tuesday, June 18, 2024

Central bank denies exchange rate band change

The Saigon Times

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HCMC – The State Bank of Vietnam (SBV) has dismissed rumors of a potential adjustment to the foreign exchange rate band, asserting that the current trading band of 5% on either side of the reference rate set by the SBV is adequate to meet market demand.

Pham Chi Quang, head of the Monetary Policy Department at the SBV, said that measures have been taken to stabilize the foreign exchange market, reported the Vietnam News Agency.

Currently, commercial banks are allowed to trade U.S. dollars based on the reference rate that deviates 5% on either side. Recently, U.S. dollar prices at these banks have frequently hit or neared the upper limit of the band, driven by both economic factors and market speculation.

To alleviate exchange rate pressure amid surplus liquidity in the banking system, the SBV has issued short-term bills to manage excess Vietnamese dong and reduce the negative interest rate differential in the interbank market.

Since April 19, the central bank has intervened by selling foreign currency to support market liquidity and meet legitimate foreign currency demand, Quang said. The Vietnamese dong has depreciated by 5% against the U.S. dollar this year, a rate Quang described as average compared to regional currencies such as Thai baht, South Korean won, Japanese yen, Indonesian rupiah, Philippine peso, and Chinese yuan.

Quang refuted recent reports suggesting changes in the central bank’s exchange rate policy. He advised businesses and the public to remain cautious of such rumors.

The recent exchange rate pressure is attributed to a stronger U.S. dollar, persistent high inflation in the U.S., and postponed rate cuts by the U.S. Federal Reserve, which have boosted the U.S. dollar index by 5% since early 2024.

Vietnam’s import recovery has also elevated foreign currency demand. This surge supports economic recovery but temporarily puts the exchange rate under pressure.

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