Nishad Majumdar, a sovereign analyst in Singapore, held that the recent appreciation of VND, which reflects the improved external position, will give the central bank space to rebuild the forex buffers that were spent down during the USD’s rally last year.
Vietnam’s reserves stood at 88.3 billion USD in January, according to the International Monetary Fund.
Majumdar held that the recovery in tourism and steady foreign direct investment inflows will help boost the nation’s reserves even as exports weaken.
The VND has advanced 6% in the past six months, joining a rally in Asian peers, as the USD has weakened.
He recommended that Vietnam prioritise exchange rate stability as a means to stabilise inflation and create certainty for inbound investors.
A stronger VND 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, the expert added.
