Vietnam reserves forecast to climb to $95 billion, Moody’s says

“The recent appreciation of the dong, which reflects the improved external position, would give the central bank space to rebuild the FX buffers that were spent down during the US dollar’s rally last year,” said Nishad Majumdar, a sovereign analyst in Singapore. Reserves stood at $88.3 billion in January, according to the International Monetary Fund.

Vietnam‘s central bank bought about $6 billion of US dollars this year to boost its reserves, according to Nguyen Quoc Hung, general secretary of Vietnam’s Bank Association. The data was given by central bank Governor Nguyen Thi Hong in a meeting last week, he said Tuesday. 

“Being able to buy that $6 billion to add into the forex reserves, the central bank will have more capacity to ensure its dollar supply to banks for import demand,” Hung said. This is very significant for the economy,” he said.

The recovery in tourism and steady foreign direct investment inflows will help boost the nation’s reserves even as exports weaken, Majumdar said in an emailed response to questions Tuesday.

Dong Strength

The dong has advanced 6% in the past six months, joining a rally in Asian peers, as the US dollar’s strength faded.

“While we don’t forecast the exchange rate, we expect the authorities to prioritize exchange rate stability as a means to stabilize inflation and create certainty for inbound investors,” Majumdar said.

A stronger dong reduces the local-currency value of the government’s external debt, which still accounts for about a third of overall government borrowing, he said. 

It will also likely mitigate the impact of higher import and manufacturing input costs into domestic inflation, giving the authorities further space to pursue a more accommodative monetary policy, he said.

Source: Bloomberg