Flexible exchange rate management solutions stabilize the foreign exchange market.

At BIDV , in the first half of this year, foreign exchange trading generated a net profit of 3,191 billion VND, more than double compared to the same period last year. Similarly, at LPBank, profit from foreign exchange trading reached nearly 193 billion VND, an increase of 17.5% compared to the same period last year.

At Agribank, in the first six months of 2024, the foreign exchange business generated a profit of VND 2,029 billion, a 60% increase compared to the same period last year. Similarly, Techcombank's net profit from foreign exchange trading in the second quarter of 2024 reached over VND 411 billion, compared to a loss of VND 11 billion in the same period last year. In addition, several other banks recorded profits from this business segment, including MB,ACB , HDBank, ABBank, and VietABank.

What will the exchange rate be like in the second half of the year?

According to the latest macroeconomic report, MBS Securities Company believes that exchange rate pressure will ease and fluctuate between VND 25,300 and VND 25,700/USD in the second half of 2024.

According to MBS's analysis team, there are positive factors impacting the exchange rate, such as: a positive trade surplus (nearly US$10 billion in the first six months of 2024), FDI inflows (US$10.8 billion, up 8.2% year-on-year), and a strong tourism recovery (up 58% year-on-year in the first six months of 2024).

In line with this view, Rong Viet Securities Joint Stock Company (VDSC) stated that there is reason to believe the US dollar will not continue to appreciate in the second half of 2024. "Although concerns about risks remain in the second half of 2024, the forecast is for the USD to remain stable in the global market, especially in the US market," the analysis team stated.

Regarding this issue, Dr. Nguyen Tri Hieu, an economic expert, stated: "With the results achieved in the first half of 2024, the economic outlook for Vietnam will continue to be positive for the second half of the year if the FED decides to lower interest rates, reducing pressure on the USD/VND exchange rate, inflation, and positively impacting other macroeconomic balances. Conversely, if the FED, under pressure from the Republican Party, postpones lowering interest rates, many disadvantages for the Vietnamese economy are predicted, including an increase in the exchange rate and inflation, and adverse impacts on foreign investment."

Implementing a loose monetary policy in Vietnam will increase exchange rate risks.

According to Ms. Le Vu Thanh Tam, M.Sc., from the Institute of Economics and Finance, interest rates and market exchange rates have a reciprocal relationship and are influenced by many intertwined factors, especially in the context of international economic integration.

To manage exchange rates flexibly and stabilize the foreign exchange market, according to Master Tâm, in the short term, the State Bank of Vietnam can use exchange rate policy (buying and selling foreign currency in interbank foreign exchange market trading sessions), apply a foreign currency interest rate limit policy, a central exchange rate and band, along with some other tools. It should also continue to improve the interbank foreign exchange market so that the State Bank can understand the supply and demand relationship for foreign currency and intervene when necessary.

In the short term, measures are needed to encourage banks trading in foreign exchange to participate in the interbank foreign exchange market, while simultaneously strengthening and developing the interbank domestic exchange market with a full range of operational activities, creating conditions for the State Bank of Vietnam to smoothly coordinate between the domestic and foreign exchange markets.

Furthermore, the central bank needs to strengthen its communication efforts to stabilize market sentiment, especially during periods of volatility, in order to stabilize sentiment in the foreign exchange market, thereby enhancing the credibility of monetary policy management and increasing its ability to guide and lead the foreign exchange market.

Ms. Le Thi Bich Ngoc, M.Sc., from the Academy of Finance, suggested that the State Bank of Vietnam should continue to implement a multi-objective monetary policy, as it is suitable for Vietnam's context.

Secondly, accurate and timely policy responses are needed, but the dosage and magnitude of adjustments to exchange rates and interest rates should not create macroeconomic shocks that destabilize the financial market and the production and business activities of enterprises.

Thirdly, it is necessary to update and publish the benchmark interest rate in a timely manner, in accordance with the actual situation in Vietnam, so that the benchmark interest rate can fulfill its proper role and significance in the field of fiscal and monetary policy management.