In the first four months of 2019, the State Bank of Vietnam (SBV) bought in US$8.5 billion, bringing the country’s total foreign reserves to US$65 billion, according to Viet Dragon Securities Company (VDSC).
Never before did the SBV manage to purchases such large amount in just a short time frame, said VDSC in its latest report.
In the four-month period, the USD/VND exchange rate moved sideways while the Chinese yuan appreciated against the greenback. However, it does not mean safe, stated VDSC.
According to the report, officials are aware Vietnam’s FX reserves are relatively low compared to its neighbors. Much can be traced back to the Asian financial crisis of 1997-1998, which did not really play out in Vietnam. Other Southeast Asian countries prioritized the importance of FX reserves ever since as they serve as a buffer for macro instability.
Additionally, VDSC expected carefulness is important as the current partten n is fragile. There are three key numbers. Firstly, the USD index, gauge of the green back’s strength, keeps moving around the peak as the US economy is comparatively better than the others.
Secondly, the Trump administration warns of 25% tax burden put on USD200 billion goods imported from China. The trade talk is on the way and any worse-than-expected things can make the financial market volatile.
Lastly, Vietnam’s trade surplus is shrinking due to higher import demand. In addition to machinery, consumption goods, especially automobiles and accessories, soared up. Crude oil and coals share the similar direction
Net buying foreign currency implies a massive supply of the VND. Therefore, the SBV’s withdrawal via the open market operation (OMO) channel and the issuance of government bond through Vietnam State Treasury (VST) are taking a hand in controlling money flow in the economy.
VST planned to issue VND80 trillion (US$3.44 billion) worth of government bonds in the second quarter, which means of an amount of nearly VND150 trillion (US$6.45 billion) will be pumped into VST’s vault.
There is a contradiction between large-scale bond issuances and low public investment disbursement. Public investment completed only 15% of the plan in the first quarter of 2019 but big infrastructure projects are scheduled in the third quarter, while changes in law on public investments are expected to smoothen the disbursement.
At the moment, excess cash is put into commercial deposit accounts. VST’s deposit at commercial banks serve as a solution to manage the banking system liquidity.