Vietnam central bank has no plans to devalue dong

Vietnam central bank has no plans to devalue dong

Tellers count dong notes at a bank in Hanoi. The State Bank of Vietnam said there is no plan to devalue the dong or change the benchmark v interest rate. There is no plan to devalue the dong or change the benchmark interest rate, the central bank governor said.

Australia & New Zealand Banking Group Ltd. predicted recently that Vietnam would devalue its currency by 4 percent within three months to boost exports and narrow a gap between so-called official and free-market rates. The dong traded between banks at VND17,783 against the dollar, 1.8 percent weaker than at the end of last year. The State Bank of Vietnam controls the currency by setting a daily reference rate, and allows the dong to trade 5 percent either side of that rate. “We don’t have any plans to devalue the dong in the way we did in December,” Governor Nguyen Van Giau said in an interview on the sidelines of the opening of the National Assembly Wednesday in Hanoi. On December 25 it set the reference rate 3 percent weaker. The gap between the official and black-market rates widened by about 2 percent in April, according to Indochina Capital Vietnam Holdings Ltd. Importers have been buying dollars on the “parallel market” because banks do not have enough, the ANZ report said. Measures the central bank has taken to make dollars more easily available to importers would eventually narrow the gap between official exchange rates and the free-market rate, Giau said. In the past year the dong has been devalued twice and the government has significantly widened its trading band, allowing the currency to slip some 9 percent against the greenback. Many expect the slide to continue this year. However, the Asian Development Bank (ADB)‘s country director said on Monday Vietnam does not need to devalue its currency in the short or medium term because the weakness of the dong is more about perception than supply and demand. The government should also avoid further loosening monetary policy because that would risk upsetting macroeconomic stability in a country that is structurally prone to inflation, which the ADB’s Ayumi Konishi said had the potential to re-emerge. The ADB’s position on the currency jibes with that of the State Bank of Vietnam, the central bank, which said last week it saw no need for a major devaluation although it expected the dong to depreciate by up to 6 percent this year. “When we look at foreign exchange demand and supply situation, particularly for trade related demands, there is no reason that the Vietnamese dong needs to devalue further at this particular point in time,” Konishi told Reuters in an interview. “At least in the short and medium term we do believe that the Vietnamese dong exchange rate should be maintained pretty much at the same level, of course, with the flexibility given to reflect the demand and supply situation. “The currency trading outside of the band ... reflects more a perception issue rather than the real demand and supply situation of the currency to start with,” Konishi said. TIME LINE OF VIETNAM’S CURRENCY POLICY March 24, 2009 - Central bank widens trading band to +/-5 percent from +/-3 percent. The mid-point reference rate stays steady, but in trade the dong quickly weakens to the new band’s limit. On the unofficial market it soon moves beyond the weak end of the band. December 31, 2008 - The dong ends the year down 8.2 percent against the dollar on interbank markets. Based on the official mid-point reference rate, the dong ends the year down 5.2 percent. December 25, 2008 - Central bank devalues the dong by 3 percent by adjusting the mid-point reference rate to VND16,989 per dollar from VND16,494 per dollar. November 7, 2008 - Central bank widens the band to +/-3 percent from +/-2 percent in a move widely seen as designed to allow the currency to depreciate so that exports can help the country’s growth. The dong weakens to the new band’s limit. June 26, 2008 - The central bank doubles the trading band to +/-2 percent from +/-1 percent, yielding to market pressure for the currency to fall at a time of sustained double-digit inflation and wide trade deficits. The bank also bans the trading of US dollars and dong via a third currency. June 11, 2008 - The central bank devalues the dong by 2 percent by setting the mid-point reference rate at VND16,461 to a dollar in the face of double-digit inflation and a worsening balance of payments. March 10, 2008 - Central bank widens the band to +/-1 percent from +/- 0.75 percent. Source: Bloomberg, Reuters