Hanoi (VNS/VNA) - Since the beginning of the year, the State Bank of Vietnamhas been increasing the reference rate of the dong against the US dollar, andthe Vietnamese currency has appreciated 0.43 percent as a result.

The buying and sellingprices of the dollar are now at 23,200 VND.

The central bank has boughtnearly 5 billion USD worth of the greenback in the first two months of the year, increasingits foreign reserves significantly.

The supply of dollars hasalso increased thanks to the fact that foreign portfolio investors have been ona buying spree on the stock market.

The inflow this year hasbeen worth 150 million USD.

Foreign direct investmenthas risen 2.5 times from the same period last year to 8.47 billion USD.

Overseas remittances alsosaw a sharp increase.

The central bank isallowing the dong to strengthen though there is no pressure on the currency and foreignexchange reserves are plentiful.

In 2016, Vietnam decided to announce a dailyreference rate for the dong against the dollar each day, shifting from a fixed rate, to enable moreflexibility.

The adjustment is based ondaily changes to eight foreign currencies that strongly affect the Vietnameseeconomy: China’s yuan, Europe’s euro, Japan’s yen, the Republic of Korea’s won, Taiwan’s new dollar,Thailand’s baht, Singapore’s dollar, and the US dollar.

But experts said though thereference rate is announced daily, there is a big gulf between it and the ratein the market.

The dollar has, in theunofficial market, been much weaker than in the bankingsystem.    

For instance, on March 11 the buying price of the dollar on the unofficialmarket was 23,205 VND compared to 23,160-23,180 VND in the official channel,while the selling price was 23,215 VND compared to 23,170-23,190 VND.

Market observers said theVietnamese currency weakened slower on the official market because the SBVcapped its buying price at 23,200 VND to the dollar based on the central rate.

Some analysts disagreedwith the central bank’s policy.

But many others saidagencies in charge of monetary policy have their own reasons to decide on thereference rate.

The central bank wants tonarrow the gap between the dong and other currencies in the region.

In 2018 the dong weakened by only 2.2-2.3percent against the dollar while many other currencies in the region fellsharply. For instance, the Chinese yuan fell by 5 percent.

To weaken the dong, the central bank boughtlarge quantities of the greenback. Exporters are not complaining since theirproducts are becoming more competitive with the depreciation of the Vietnamesecurrency.

The analysts also said thecentral bank’s decision to lower the central rate and weaken the dong is also aimed at aligningthe currency closer to the market rate.

This would help the central bank gradually realise its goal of doing away withthe current policy of setting the reference exchange rate and having a /- 3percent band within which banks can set their rates.

The analysts saidenterprises with transactions denominated in dollars should take preventiveaction like hedging to avoid losses when the foreign exchange rate fluctuatesstrongly.-VNS/VNA