The State Bank of Vietnam devalued the dong for the second time in seven months Wednesday as regional currencies declined, seeking to support exports that have sustained the country’s economic growth.
The State Bank of Vietnam devalued the dong for the second time in seven months Wednesday. (Bangkok Post photo)
The central bank weakened its reference rate 1% to 21,458 dong a dollar, effective today, it said on its website late yesterday. The dong is allowed to trade as much as 1% either side of the fixing. The currency fell 0.3% to 21,470 as of 11.43am in Hanoi, according to data compiled by Bloomberg, heading for its biggest drop since the currency was last devalued on June 19.
The decision "is in line with movements in the local and international currency markets," the central bank said. The currency was also devalued by 1% in June. Governor Nguyen Van Binh said last month that the regulator wouldn't weaken the dong more than 2% in 2015.
Asian currencies have weakened against the dollar over the past six months as investors bet the US Federal Reserve will begin to raise interest rates this year. Vietnam's move helps keep the country's goods competitive against rivals, after shipments by manufacturers such as South Korea's Samsung Electronics Co boosted exports by 13.6% last year.
"With the US dollar set for an exceptional year in 2015, Vietnam would see regional export competitiveness eroded over the course of the year on an unchanged dong reference rate," Glenn Maguire, Australia & New Zealand Banking Group Ltd's Singapore-based chief economist for South Asia, Asean and the Pacific, said in an e-mail today. "A weaker dong reference rate is the appropriate policy to maintain exports as the engine of the Vietnamese recovery."
Dong falls
At the new reference rate, the currency is allowed to fluctuate from 21,243 dong against the dollar to 21,673 dong, the State Bank said.
More devaluations may come in 2015 and the dong will probably end 2015 about 3% weaker against the dollar, ANZ's Maguire said. The Bloomberg Dollar Spot Index rose 11% last year, the most in data going back to 2005.
The State Bank said it "will take comprehensive measures to stabilize the dong's exchange rate and the currency market on the new price level."
Vietnam's rising exports and investment helped the economy expand an estimated 5.98% last year, beating the government's 5.8% target, even as authorities struggle to clean up bad debt and overhaul the financial system.
'Necessary' move
The domestic economy has yet to feel the benefits of the export boom. The central bank cut policy interest rates last year to spur lending and help businesses. Inflation eased to 1.84% in December, the slowest pace in data compiled by Bloomberg going back to early 2006.
The yield on the five-year government bonds was little changed at 6.23% yesterday, according to a daily fixing from banks compiled by Bloomberg before the reference rate change was announced. The benchmark VN Index of stocks climbed 0.4% today following a 1% gain yesterday.
"There has been a lot of pressure on the dong, and the State Bank may want to relieve the pressure on the currency," Alan Pham, Ho Chi Minh City-based chief economist at VinaCapital Group, the nation's biggest fund manager, said by phone after the move. "This devaluation is necessary and helpful for exports."