Vietnam central bank devalues dong for third time this year 

Posted on August 19, 2015 07:20:12 PM | BREAKING NEWS

VIETNAM DEVALUED the dong for the third time this year in a bid to maintain export competitiveness and boost growth after China depreciated the yuan.

The State Bank of Vietnam weakened its reference rate by 1 percent to 21,890 dong a dollar effective Wednesday, it said in a statement on its website. The authority also widened the currency’s trading band to 3 percent on either side of the fixing. The dong fell 1.4 percent to 22,408 as of 10:36 a.m. in Hanoi, according to data compiled by Bloomberg.

The devaluation comes after the central bank widened the dong’s trading band to 2 percent from 1 percent on Aug.12, a day after China’s surprise policy shift heightened the risk of a currency war. Prime Minister Nguyen Tan Dung is seeking to safeguard slowing export growth and the State Bank said it’s concerned about the prospect of higher US interest rates.

“After the strong devaluation of the yuan, Vietnam’s domestic market sentiment is still very much concerned about the impact of the US Federal Reserve’s rate increase,” the central bank said in its statement. The reference rate and the trading band are being adjusted “in order to proactively lead the market and preempt negative impacts of the possibility that the Fed will increase rates.”

Vietnam posted a trade deficit of $300 million in July as export growth slowed to 9.5 percent in the first seven months of 2015, compared with 14.1 percent a year earlier.

The dong has declined 4.6 percent this year, putting the country’s exporters at a relative disadvantage to those in nations like Malaysia and Indonesia, whose currencies have fallen 14.7 percent and 10.5 percent, respectively.

‘Enough Room’

“Today’s move is a very good policy action,” Le Anh Tuan, chief economist at Dragon Capital Group Ltd. said by phone from Ho Chi Minh City. “It will make the currency more competitive and help boost exports.”

The Vietnamese monetary authority devalued the dong in January and May by 1 percent each time. That followed similar- sized cuts to the fixing in both 2014 and 2013.

With Wednesday’s changes, “the dong will have enough room to fluctuate more flexibly to cope with negative impacts from international and domestic markets, not only from now until the rest of the year but also in early months of 2016,” the central bank said in the statement.

The State Bank said it “will take comprehensive measures” and “is ready to sell foreign currencies when needed to stabilize the money market and keep the dong’s rates within the allowed band.” -- Bloomberg