HANOI: Vietnam on Friday devalued its currency for the fourth time in 15 months in an effort to control a huge trade deficit, but analysts said the move threatened to boost soaring inflation.
In a widely expected announcement the State Bank of Vietnam said the average inter bank exchange rate had been adjusted by 9.3 percent to 20,693 dong against the dollar, compared with 18,932 dong previously.
It said in a statement the decision was aimed at "ensuring the liquidity of the market, contributing to curb the trade deficit and supporting the implementation of more active and flexible monetary policies."
The move comes after the ruling Communist Party's five-yearly congress last month set an economic framework for coming years, with leaders noting a need to "stabilise the macroeconomy".
But economist Le Dang Doanh told AFP the devaluation would make imports more expensive and therefore temporarily lower inflows of foreign goods.
He added that the rising price of fuel, which is bought from abroad, will drive inflation higher.
Annual inflation hit 12.17 percent in January, while the trade deficit hit an estimated $12.4 billion last year.
Unlike its regional neighbours, whose currencies have strengthened in recent months as confidence in their economies has attracted a flood of overseas capital, Vietnam's dong has struggled.
Ratings agencies Moody's and Standard & Poor's recently downgraded the country's credit rating over worries about the economy, the banking sector and the problems of nearly-bankrupt state-owned shipbuilder Vinashin.
The World Bank has said an unusually large amount of money held outside the country's official foreign exchange reserves has pressured the unit.
Many Vietnamese see dollars and gold -- rather than their own currency -- as a safe haven against economic uncertainty.
The central bank also on Friday tightened the daily trading band for buying and selling dollars by commercial banks, to one percent from the previous three percent of the inter bank exchange rate.
Its previous devaluation, by 2.1 percent, came in August last year.
Vietnam's economy grew an estimated 6.8 percent in 2010, its fastest in three years, but the country's donors warned late last year that growth was threatened unless Hanoi controlled inflation and its currency weakness.
London-based Capital Economics consultancy said in a report last month: "Vietnam needs to target lower inflation and smaller deficits rather than high GDP growth for its own sake."
Foreign investors cite Vietnam's overloaded infrastructure, an under-qualified workforce, excessive bureaucracy and corruption as other factors that keep the country from meeting its economic potential.
Vietnam has relied on natural resources and unskilled labour to achieve rapid growth, but at the January's congress leaders spoke of moving to a more advanced system of production based on science, technology and "high-quality human resources".
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