[NEWS] – Which scenario for exchange rate, credit and money supply in 2023

BIDV Securities recently released scenarios for exchange rate, credit, and money supply movements in 2023.

1. USD/VND exchange rate

In the newly released macro report, BIDV Securities (BSC) said that the USD / VND exchange rate will increase sharply in the second half of 2022 when the FED accelerates the tightening of monetary policy. As of December 30, the interbank exchange rate of USD/VND reached 23,633 (+3.4%).

The USD/VND exchange rate increased sharply due to: (1) The narrowing interest rate gap between USD and VND puts intense pressure on the VND market; (2) Foreign exchange reserves declined during stressful periods in the second and third quarter mainly due to the withdrawal of foreign capital from the Vietnamese economy due to the increasing pressure of the international dollar.

In terms of foreign exchange supply for 2023, foreign exchange reserves will remain abundant based on the following three factors: (1) The trade surplus is expected to continue in 2023 when macro factors are still supporting Vietnam’s export surplus trend. According to BSC calculations, this figure is estimated at 13-15 billion dollars. (2) Remittance sources are estimated to have an average growth rate of 3 years at 4.4% and reach 19.7 billion USD in 2023. (3) The State Bank maintains a stable exchange rate management policy and can buy back the USD if there are favorable conditions such as controlling inflation and the Dollar Index adjusting after the strong bull cycle in 2022.

BSC believes the interbank exchange rate will likely fall under two scenarios.

Scenario 1: 24,400 USD/VND (+3.2% YTD). This case happened when the Fed raised interest rates above 5.25% along with Vietnam’s inflation at 5.1% and the slow recovery of the tourism industry.

Scenario 2: $23,900/VND (+1.1% YTD). This case occurs when the Fed maintains interest rates at 5.25% along with Vietnam’s inflation below 4.5% and the rapid recovery of the tourism industry.

2. Monetary Policy

Regarding monetary policy, BSC said that in the past year, the State Bank of Vietnam raised interest rates twice in September and October under the pressure of a strong dollar, high FED interest rates, and rising inflation. The rediscount rate increased from 2.5% to 4.5% and the refinancing rate increased from 4% to 6%.

At the same time, Decree 65/2022 tightening the corporate bond market (mainly real estate) also puts intense pressure on long-term investment capital. Since then, total means of payment had the slowest increase in history and only reached 3.85%. The difference between the complete means of payment shows the lack of capital of enterprises.

Given that Vietnam’s inflation is on the rise and the FED can raise interest rates by 0.75% according to the current plan, the SBV may increase interest rates by 0.5-1.0%. This phenomenon will also directly affect the amount of money flowing into the Vietnamese economy.

With the above forecast, BSC is divided into two main scenarios for credit growth and M2 money supply for 2023.

Scenario 1: High inflation in Vietnam and the FED raising interest rates by more than 0.75% may cause the operating interest rate to increase by +1%. In addition, if the corporate bond market recovers slowly, M2 and credit growth will be lower than from 2020 to 2021. M2 and credit are estimated to increase by 6% and 10% respectively.

Scenario 2: If Vietnam’s inflation is controlled and the Fed raises interest rates by 0.75%, it can cause the operating interest rate to increase by 0.5%. Besides, if the corporate bond market recovers quickly, it will make M2 and credit grow faster than from 2020 to 2021. M2 and credit are estimated to increase by 12% and 14%, respectively.

Source: Collector