Institutional research and investment advisers believe influence of SBV activities in forex market is negligible.
The weekly Vietnam Macroeconomic report from the institutional research and investment advisory corporation SSI states that the use of forex reserves by the State Bank of Vietnam (SBV) as a means of intervention is relatively insignificant in exchange rate movements.
The report said that the SBV began its intervention into the forex market by selling roughly $200 million to commercial banks; the first time this year possibly at the quoted rate of VND21,820/USD, which is similar to the current Vietcombank rate. This is not a significant amount given the fact that the weekly trading volume in the interbank market for foreign currency is $2 billion on average.
It also stated that commercial banks held a short forex position of about $1.2 billion recently, and SSI believes that it is not in the interests of the SBV to close the short position, as it is still below the ceiling level.
Circular No. 07/2012 from the SBV stipulates that local banks’ forex positions have to fall within a range of +-20 per cent of their shareholders’ equity, which stood at about VND523 trillion ($23.99 billion) at end of the first quarter, so the maximum short position should be around $4.78 billion.
Vietnam’s forex reserve, despite amounting to only 12 weeks’ worth of imports (at $36-37 billion), is still lower than the average of its Asian peers at the moment, especially for a country that follows a crawling-peg system.
Therefore, SSI believes that using forex reserves as a means of intervention is an insignificant move to ease the pressure on the exchange rate.
SSI also considered the actual trade balance for May, which will be announced on June 15, to assess whether the high trade deficit in the first half of May is a seasonal anomaly (i.e. a second half surplus could pare back the loss and turn the full month balance to surplus again). A better indicator is to assess the pressure on the VND at the moment, rather than the SBV’s symbolic move to calm the market.