The State Bank of Vietnam on March 23 widened the daily trading band for USD/VND to from +/-3 percent to +/- 5 percent against the official interbank rate to enhance the flexible adjustment of the economy.
The decision was effective on March 24, stated the central bank’s website.
This is the first time this year and the fourth time since last year the State Bank has widened the daily trading band – which was +/-0.75 percent at the start of January last year – to deal with complex fluctuations of both domestic and global foreign exchange markets. Prior to last year, the central bank had only made very small alterations to the daily trading band a few times.
The wider trading band was expected to help the USD/VND exchange rate be more flexible, reflect more accurately the supply and demand on the market and help banks and enterprises actively draft out their business plan this year.
“This is only a technical measure to make the daily forex market more flexible. The core issue lies in the interbank rate if the bank wants to manage the exchange rate to be close to the market,” said Tran Du Lich, head of HCM City Economic Research Institute.
Lich said: “It’s too early to say how the forex market will go. We all need time to observe what people do with the widened trading band.”
Together with widening the trading band, the central bank said it would punish violations using derivatives to spot-trade US dollar at exchange rates higher than the capped trading band.
The bank is also looking at applying measures to limit the public’s sentiment to hold the dollar./.