He said in a business luncheon with members of foreign associations in Vietnam on Vietnam’s economy on Wednesday in HCMC that many regional currencies took a hard hit after the Federal Reserve (Fed) in late July revealed that they could gradually reduce the pace of the bond-buying package QE3. Emerging markets in Asia and elsewhere saw the wave of foreign outflows, prompting strong depreciation of those countries’ currencies against the greenback.
By August according to information given by HSBC, the Indian rupee had weakened by 15.47% against the dollar, while the Indonesian rupiah depreciated by 12.68%. Meanwhile, Vietnam dong had depreciated by 1.5% against the dollar by August, the third most stable currency behind China’s yuan and Hong Kong dollar.
Trinh Nguyen, an economist of HSBC, said that there were two reasons making Vietnam dong stable against the U.S. dollar over the past year. Firstly, the country’s trade deficit has been narrowed down significantly and Vietnam does not need to depend on foreign capital flows to offset the deficit.
She told the Daily that it was mainly because the Government had maintained such policies as increasing interest rates and controlling credits since 2011 which dampened the domestic demand and also the import demand.
Secondly, foreign capital flowing into Vietnam has been mainly foreign direct investment which is more stable so Vietnam dong has not been affected by the volatile portfolio flows.
Although Vietnam has not been as attractive as other regional countries in luring portfolio investment, but in the positive view, Nguyen said that situation hedged the country against vulnerable portfolio investment.
“In short term, Vietnam is not attractive to foreign investors, but in long term it is attractive as the foreign direct investment has strongly increased this year,” Nguyen said.
She also said that in her opinion, the worst of Vietnam economy is behind now but the best has yet to come. The Government has many things to do such as restructuring the banking system, making effective investment in infrastructure, and improving the business environment.
HSBC forecasts from now to the end 2014, Vietnam dong will gradually depreciate against the U.S. dollar and will hit VND21,250 by the end of this year, and VND21,500 by the end of next year.
Early this week, a report of ANZ on Vietnam’s economy also gave forecast that the foreign exchange rate would be VND21,500 to the dollar by the middle of next year.
HSBC has revised down its projection on Vietnam’s growth this year from 5.5% to 5.2%, while the average forecast of other institutions is 5.4%, equivalent to the target that the Government reported to the National Assembly. The foreign bank revised up the CPI forecast this year from 5.8% to 6.7%.
HSBC also expects Vietnam will have trade surplus of US$600 million in 2013 and trade deficit of US$700 million next year.
While ANZ in the recent report estimated foreign reserves of Vietnam at around US$32 billion, HSBC forecasts foreign reserves of Vietnam would be US$30 billion by the end of this year and US$35 billion by the end of next year.