Vietnam Central Bank Devalues Dong to Buttress Exports: Economy
By - Jan 7, 2015
The State Bank of Vietnam devalued the dong for the second time in seven months as regional currencies declined, seeking to support exports that have sustained the country’s economic growth.
The central bank weakened its reference rate 1 percent to 21,458 dong a dollar, effective today, it said on its website late yesterday. The currency, which is allowed to trade as much as 1 percent either side of the fixing, fell 0.3 percent to 21,460 a dollar as of 3:09 p.m. in Hanoi, data compiled by Bloomberg show. It was poised for its biggest drop since the dong was last devalued, also by 1 percent, on June 19.
The decision “is in line with movements in the local and international currency markets,” the central bank said. Governor Nguyen Van Binh said last month that the regulator wouldn’t weaken the dong more than 2 percent in 2015.
Asian currencies have fallen against the dollar over the past six months as investors bet the U.S. 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 percent last year.
Recovery Engine
“With the U.S. 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.”
The dong fell 1.4 percent against the dollar last year, trailing declines of 1.7 percent for Indonesia’s rupiah, 3.8 percent for South Korea’s won and 6.3 percent for Malaysia’s ringgit. The Bloomberg Dollar Spot Index (VNINDEX), which tracks the greenback against 10 peers, rose 11 percent in 2014 the most in data going back to 2005.
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 Vietnamese currency will probably end 2015 about 3 percent weaker against the dollar, ANZ’s Maguire said.
Philippine Reserves
Authorities across the region have reacted to their weakening currencies. Indonesia today revised its assumption for the average exchange ratein 2015 to 12,200 rupiah a dollar, from 12,000 in a December estimate.
In the Philippines, gross international reserves slid in November to the lowest level since mid-2012, partly due to central bank foreign-exchange operations, Bangko Sentral ng Pilipinas said last month.
Vietnam’s central bank said it “will take comprehensive measures to stabilize the dong’s exchange rate and the currency market on the new price level.”
The country’s rising exports and investment helped the economy expand an estimated 5.98 percent last year, beating the government’s 5.8 percent target, even as authorities struggle to clean up bad debt and overhaul the financial system.
The domestic economy has yet to feel the full benefits of the export boom. The central bank cut policy interest rates last year to spur lending and help businesses. Inflation (VNCPIYOY) eased to 1.84 percent in December, the slowest pace in data compiled by Bloomberg going back to early 2006.
Necessary Move
The yield on the five-year government bonds rose one basis point, or 0.01 percentage point, to 6.25 percent today, according to a daily fixing from banks compiled by Bloomberg. The benchmark VN Index of stocks climbed 0.4 percent following a 1 percent 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.”
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