If you have been following the Vietnamese market recently, you will see that the State Bank has raised interbank USD/VND rate (official midpoint ) dramatically to 3% but still keep the band of 3%. Typically, banks and financial institutions operating in Vietnam have to follow state bank’s regulation on FX. Accordingly, they must transact FX deals within the variance band of interbank rate that SBC announces daily.
Earlier in November, there were a number of rumors on the issue that State Bank would lift USD/VND variance band to 5% from 3%, which is due to the heating foreign exchange free market. The USD/VND rate transacted in the black market was higher at 5% than the interbank rate. Rumors of such change in the foreign exchange band is driving the market.
Basically, a flexible foreign exchange rate is necessary for the economy amid recent economic turmoil. However, the change in this time becomes sensitive. Perhaps, the Vietnamese Dong devaluation is based on inherent attributes of the economy such as weaker export industry, or economic stimulation from huge money amounts injected into the economy. However, a key factor led to this situation is rumors and speculation.
The State bank's expectation of better liquidity foreign exchange rate could be not realized by the adjustment in the USD/VND interbank rate. But, speculators think that this action from State Bank shows a sign that Vietnam Dong could be continued to devalue in the short time. So, speculators don't want to sell USD out in the short term. Again, this leads to the shortage of USD in the market. In return, foreign exchange rate could be higher. Therefore, I raise a call that there would be another devaluation of Dong in the next time.