Vietnam devalues dong

Vietnam devalued the dong for the second time this year on Thursday to spur exports and curb demand for imports that has left it with a hefty trade deficit. Given the recent relative strength of the currency, the move was widely expected, especially after the export-led economy recorded a $3 billion trade deficit in the first four months of 2015, compared with a $2 billion surplus in the same period a year before.
The State Bank of Vietnam (SBV) said it lowered the mid-point rate for the currency on the interbank market by 1 percent to 21,673 dong per dollar. "The Vietnamese dong (VND) has actually been relatively stronger than other emerging Asian currencies," said Christopher Wong, a senior currency analyst at Maybank in Singapore. "The implication of a relatively strong currency may not do justice to an economy that's attempting to manage growth and increase competitiveness," Wong added, while noting a weaker currency may also increase production costs for importers.
Dollar/dong transactions can be done at plus or minus 1 percent around the mid-point, which the SBV sets daily. The previous depreciation was on January 7, also by 1 percent, to help stabilise the foreign exchange market. "The market had expected this change right after the government released data on the trade deficit," said a money market dealer at a Ho Chi Minh City bank.
"The expectation is for more depreciation, as the dong is down just 2 percent while other currencies in the region have fallen 4-5 percent." The central bank said recent pressure on the dollar/dong rate was "psychological", adding that its latest move was to help meet economic targets and cope with negative impacts from global markets. It said in December that dong depreciation would be less than 2 percent for the whole of 2015. After the adjustment, the dong fell to 21,670/21,750 per dollar as of 0359 GMT on the interbank market, from 21,620/21,670 on Wednesday.
The currency could slip to 22,050 per dollar by year-end, taking its annual depreciation to 3.1 percent, ANZ said in a research note. It declined 1.4 percent in 2014. Vietnam's January-April exports rose 8.2 percent to an estimated $50.1 billion. Imports surged 19.9 percent. The government sees export growth of 10 percent for 2015, slowing from 13.7 percent last year. Imported machinery and electronics parts reached a combined $17.08 billion in the first four months of 2015, up 36.6 percent from a year ago. ANZ believes the trend is linked in part to exporters' plans to expand capacity.