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Dong record low unchanged
Vietnam's central bank left the value of the dong against the dollar virtually unchanged Thursday, a day after an effective 2 percent devaluation as the economy struggles with double-digit inflation and trade imbalances.
The State Bank of Vietnam set the official rate at 16,458 dong to the dollar but still significantly lower than black market and offshore forwards market rates.
The spot dong rate was quoted on the interbank market at VND16,613/16,623 to a dollar, pushing to the lower limit of the daily trading band that allows the currency to trade 1 percent either side of the official rate.
Analysts say prices on the street hovered around VND18,000, and forwards dealing showed a near 30 percent depreciation in one year's time, reflecting the view that authorities have moved too slowly to combat inflation running at more than 25 percent.
Imports have also soared, tripling the trade deficit and shipping companies were accepting payments only in dollars as the gap between the official and black market rates remained wide.
An official in the central bank's foreign exchange department said Thursday that the sharp rate change Wednesday was "an adjustment" and declined to comment on analysts' views that it was effectively a devaluation.
The official referred to the central bank's statement, which said it had decided to "adjust" the rate between the dong and the dollar "to reflect more accurately the supply and demand of foreign currencies on the interbank forex market and to prevent foreign currency speculation."
Just last week the government said it had no plans to devalue the currency, but several analysts said the central bank's lowering of the dong on Wednesday was effectively a devaluation.
The central bank also raised the benchmark interest rate on dong denominated loans to 14 percent from 12 percent and two other rates as part of its anti-inflation policies.
"The Vietnamese government is really hoping to tough it out and make small devaluations periodically and to wait it out for other measures to kick in," said Tim Condon, economic analyst with ING in Singapore.
Gold shops, which act as exchange agents for banks, on Wednesday started to purchase the dollar from residents at around 16,600 dong, similar to official rates.
They declined to sell, citing a central bank decree allowing them only to buy foreign currencies.
Since hitting a 2008 high of 15,815 per dollar in the interbank market on March 25, the dong has dropped 4.9 percent, three percent of that since Wednesday.
Macroeconomic stability has been taken for granted in Vietnam, which has grown on average by 7.5 percent a year since 2000, so seven consecutive months of double digit inflation has raised alarm.
The government has warned speculators they would be "severely punished" as people have been found hoarding rice and petrol, gold shops sold dollars illegally, and factory workers went on strike for higher wages.
Thanhnien
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