IMF's Largarde: “Economic prospects for Vietnam remain favorable”

Christine Lagardes also welcomed Vietnam's move to adopt a greater exchange rate flexibility would increase its shock absorbing capacity.

“I welcomed the government’s adoption of a more flexible exchange rate regime, and agreed that it would provide an enhanced external shock absorber that would help preserve macroeconomic stability and allow an accumulation of international reserves,” said IMF managing director Christine Lagarde in a press release on Friday.

The press release was issue to wrap up the three-day official visit of Christine Lagarde to Hanoi and Ho Chi Minh City, two biggest cities of Vietnam.

The recommendation followed what the IMF chief said in a speech in Hanoi one day earlier that Vietnam should “safeguard macroeconomic stability, like making greater use of exchange rate flexibility to soften the impact of external shocks and help build external reserves.”

IMF recommended Vietnam to create a new monetary policy regime for a rising and more sophisticated economy, and using inflation as a nominal anchor for monetary policy, said the head of the IMF in her speech.

“Economic prospects for Vietnam remain favorable,” said Christine Lagarde.

The IMF chief suggests Vietnam to “broaden and sustain these achievements through a second generation of reforms that continue macroeconomic and financial stability, accelerate structural reforms and further integrate Vietnam into the regional and global economy.”

“I also encouraged the authorities to further strengthen the country’s fiscal position and resilience amid external volatility,” said Lagard.

The State Bank of Vietnam (SBV) on January 4 started to apply a “central forex rate” for the U.S. dollar which the SBV can adjust on a daily basis with a minus/plus three percent trading band.

With the initiative, introduced by the SBV on December 31, the central bank of Vietnam had for the first time abandoned the old mechanism of maintaining a fixed reference rate for the whole banking system.

The move followed the 1 percent devaluation of the local currency, the Vietnamese dong, and the widening of the trading from minus/plus two percent to three percent to cope with the depreciation of the Chinese yuan some days earlier.

By the end of last year, the local currency, the dong was collectively devalued by almost 5 percent given the one-percent devaluation in January, May and August, and the widening of the dong-dollar trading band.