Reduced financial pressure thanks to lower exchange rates

The USD has been continuously depreciating, falling more than 3.6% against other strong currencies since the beginning of August alone. This decline has caused the USD to fall to its lowest level since the beginning of the year. This, combined with the State Bank’s flexible exchange rate management, has helped the USD/VND exchange rate to fall to its lowest level in nearly half a year, thereby helping to reduce financial pressure and production costs for businesses and stabilize domestic interest rates, contributing to curbing inflation.

According to the State Bank of Vietnam, since the beginning of the year, the VND has depreciated by nearly 5% against the USD, but today it has only depreciated by 2.3%. This has caused the interbank exchange rate, the exchange rate at which banks transact with each other on the afternoon of August 29, to be below 24,900 VND/USD. The latest moves from the US Federal Reserve about the possibility of adjusting monetary policy in September will further increase the value of the VND.

Lower exchange rate pressure will help banks access cheaper capital sources in the market.

Mr. Nguyen Hung – General Director of TPBank shared: “The Fed lowers interest rates, the demand for USD storage decreases, so holding VND is more profitable. Thus, the demand for converting from VND to USD will decrease, reducing pressure on the exchange rate.”

The pressure on exchange rates to decrease will help banks access cheaper capital sources in the market, especially in the context of credit growth returning to positive levels by the end of August, with an increase of 6.63% compared to the end of 2023.

Mr. Pham Nhu Anh – General Director of MBBank shared: “Liquidity in the market is less tense and banks also have more abundant capital mobilization with more suitable interest rates, saving costs for production and business activities of enterprises that use more financial leverage to borrow capital”.

The most obvious beneficiaries are the group of businesses that import raw materials to produce goods for domestic consumption or to meet orders from partners. Thanks to the cheaper cost of imported raw materials, the selling price is also cheaper, thereby contributing to curbing inflation in the country.

Mr. Can Van Luc – National Financial and Monetary Policy Advisory Council commented: “Imported inflation will also be reduced, then the price of consumer goods will also be reduced partly, thereby affecting the price level, including CPI of Vietnam”.

The cooling exchange rate not only supports businesses, but also helps the economy achieve its dual goals of controlling inflation at 4-4.5% this year, while creating momentum to strive to achieve the GDP growth target of about 7% this year.