A bank teller counts dollar currency at a transaction office in Hà Nội. The State Bank of Vietnam (SBV)’s central rate of the Vietnamese đồng against the US dollar was adjusted up 0.7 per cent in January 2024 to VNĐ24,036 per dollar. — Photo stockbiz.vn

The USD/VNĐ exchange rate has seen notable developments in the first month this year when it increased significantly in both official and free markets.

Specifically, the State Bank of Vietnam (SBV)’s central rate of the Vietnamese đồng against the US dollar was adjusted up 0.7 per cent in January 2024 to VNĐ24,036 per dollar.

The exchange rate on the interbank market in the month also increased by 1.4 per cent compared to the end of 2023 to VNĐ24,611 per dollar, the highest level since the end of November 2022.

The dollar buying and selling exchange rate listed by Vietcombank is currently at VNĐ24,395 and VNĐ24,765 per dollar, respectively, an increase of nearly 1.4 per cent since the beginning of this year and only about 0.5 per cent lower than the historical peak recorded in the end of October 2022.

Exchange rate fluctuations in the free market are similar to the official market. The dollar selling rate on the market reached a record high of VNĐ25,120 per dollar at the end of last week before cooling down to VNĐ25,035 per dollar on Monday.

Analysts attributed the USD/VNĐ exchange rate increase in January to the influence of the escalating developments of the greenback in the international market and an overly high gap between dollar and đồng interest rates.

In a newly published report, Viet Dragon Securities Company (VDSC) said that the current devaluation of the đồng against the dollar is due to the dollar and đồng interest rate gap still being very large, at approximately 5 per cent in January.

However, analysts from KB Securities Company (KBSV) believe the recent increase in the USD/VNĐ exchange rate has not forced the SBV to intervene to stabilise the exchange rate. It explained that the SBV usually intervenes when the exchange rate increases by at least 2 per cent. The interbank exchange rate is also still far from the SBV’s selling rate of around VNĐ25,187 per dollar. Besides, in the context of stable low inflation, the SBV’s current monetary policies still prioritise lowering interest rates to stimulate economic growth.

In case the USD/VNĐ exchange rate increases more than 3 per cent from the beginning of this year - corresponding to Dollar Index (DXY) around 108 - KBSV believes that the possibility of the SBV intervening to stabilise the exchange rate is feasible. However, the KBSV’s analysts do not expect this scenario because DXY's room for further growth is quite limited given the expectation that the US Federal Reserve (Fed) will lower interest rates in 2024.

KBSV expects the USD/VNĐ exchange rate to be more stable in 2024 and to increase by 1.5 per cent to reach VNĐ24,600 per dollar in the year thanks to an overall balance surplus of US$7-10 billion in 2024 in the wake of positive FDI inflows and remittances, and a reduction in the balance finance deficit. In addition, the Fed's interest rate cut this year will help narrow the negative interest rate gap between dollar and đồng. — VNS