Hanoi (VNA) – The US-China trade war and the fall in theChinese Yuan post big impacts for the world economy, including Vietnam. Someexperts have said Vietnam should employ flexible exchange rate policies inresponse.

A recent report from the Vietnam Institute for Economic and PolicyResearch (VERP) under the Hanoi National University noted that the US and Chinaare two trade partners of special importance of Vietnam.

The US is Vietnam’s largest export market where one fifth of totalexport revenue comes from, while a quarter of imported goods to Vietnam arefrom China, according to the report.

Currently, the VND price depends on the fluctuation of the USD. When theChinese Yuan’s price drops, the trade balance of Vietnam will be seriouslyaffected as cheaper Chinese goods will flood the domestic market.

Nguyen Duc Thanh, VERP Director said Vietnam should pursue flexible policieson exchange rate, which means the country should reduce the price of the VNDcompared to USD, but not as strong as the depreciation of the Chinese Yuan.

Thanh said that as a big importer of Chinese materials for processingand exporting, the adjustments in the exchange rate will benefit both those importingmaterials from China and those exporting goods to the US. Therefore, takingadvantage of the two giant markets will help improve the production and tradebalance of Vietnam.

According to financial expert Nguyen Tri Hieu, it is necessary to devaluethe VND price by 3 percent for the whole year, noting that the VND has lost morethan 1 percent since the beginning of the year.

Hieu asserted that maintaining a stable exchange rate is not profitable inthe context of China devaluing its currency.

Since the beginning of 2018, the reference VND/USD exchange rate hasincreased by about 1.1 percent compared to the beginning of the year, whilethat of commercial banks rose about 1.4 percent.

Specialists commented that the rise is not yet worrying and there isstill room for the VND/USD exchange rate to increase.

However, many experts are concerned that the decline in VND price willlead to changes in interest rate for VND loans and risks of higher inflation.

VEPR research also warned that amidst the upturn trend of foods and fuels,to keep the average inflation of 4 percent, it is necessary to exert moreefforts, especially in tightening monetary policies by the State Bank ofVietnam (SBV).

Thanh suggested the Government and SBV act quickly to control inflationto avoid problems in the market such as the fluctuations in exchange rate orinterest rate.

According to the SBV, it has bought about 11 billion USD in the firsthalf of 2018, raising foreign currency reserve to a record height of 63.5billion USD.

The bank also affirmed that with the high reserves, it is ready to pumpmoney into the market to ensure stability in foreign currency market.

It has also taken steps to stabilise the market by lower the sellingprice of USD at its transaction centre.-VNA