HSBC responds to central bank devaluing VND by 1%.
The State Bank of Vietnam (SBV) today devalued the Vietnam dong (VND) by 1 per cent against the USD, raising the daily reference rate from VND21,458 to VND21,673.
HSBC's Research Department noted in a press release that the USD-VND exchange rate should rise towards the upper half on the band by the end of this year and predicted it will stand at 21,750 by that time. It also emphasized that the VND would not weaken to any dramatic extent.
HSBC said it was not a complete surprise that the State Bank of Vietnam (SBV) made the move but did not expect any further policy moves in that direction from the central bank this year.
The USD-VND exchange rate had been trading closer to the top side of the band, highlighting that demand for USD has remained relatively strong over the last couple of months, HSBC believes, and there was no significant “fundamental” deterioration that prompted the SBV to devalue the VND.
“This shift in the reference rate should be seen as a proactive measure to help narrow the trade deficit ($3 billion year to date, not seen since 2011) and to arrest the slight deterioration in Vietnam’s balance of payment position,” HSBC pointed out.
It also does not think that the devaluation is designed to boost exports and is concerned that losses in export competitiveness have been exaggerated. In fact, Vietnam’s non-commodity exports such as electronics, textiles and footwear were holding up, and these will be supported when Vietnam joins in free trade agreements with the Eurozone and Asia-Pacific countries via the TPP.
Meanwhile, the REER, a measure of the VND based on total trade weights, appreciated over the last year. Nevertheless, a more relevant indicator was the currency’s performance against those of economics in which Vietnam directly competes in exports. The VND has weakened relative to the currencies of the country’s Top 5 trade competitors, such as the CNY (Chinese Yuan Reminbi), LKR (Sri Lankan Rupee), BDT (Bangladeshi Taka), PHP (Philippines Peso), and THB (Thai Baht).