Vietnam’s currency weakens on grim outlook in 2020

Last updated on May 7th, 2021 at 08:42 am

HANOI – According to the Central Bank, The Vietnamese Dong currency may likely get hit due to a weaker foreign direct investment inflow forecast caused by the Covid-19 pandemic.

Fitch Solutions experts predicted the currency to be at around VNĐ23,475 per US dollar this year and VNĐ23,650 in 2021 from the current rates of VNĐ23,309 to 1 USD.

“We maintain our view for the đồng to gradually depreciate against the US dollar over the long term due to its overvaluation and Việt Nam’s higher inflation vis-à-vis the US,” they said in a statement.

The expert said that the FDI inflow that usually supports the Dong will slow drastically this year. Over $38 billion in total registered investment capital, a 7% increase from the $35.5 billion in 2018.

Given that the global economy is now in recession due to the coronavirus, they predicted that the external demand will significantly less as compared to the previous year.

“…Vietnam is dependent on exports as exports account for 95 per cent of GDP, and as such a weaker currency would ideally position the country for a stronger exports rebound with global demand likely to pick up after restrictive measures and lockdowns are gradually lifted.”

As the United States continues to reduce its dependence on Chinese exports and looking for Vietnam as a possible supply chain partner, Vietnam is still at risk of tariffs being imposed by China. Fitch experts  also forecast the inflation rate to be at around 3.8% this year and 4.2% in 2021