|
Dong continues drop toward 17,000 mark
The dong fell for a fifth day Friday after the central bank widened the currency’s daily trading band.
It wrapped up a week of losses after the State Bank of Vietnam said Friday it would increase the trading range for currencies to 3 percent, from 2 percent, on either side of a daily reference rate, effective Friday. A wider band will give the currency more room to weaken, helping increase the competitiveness of the nation’s exports and boosting growth.
The dong declined 0.86 percent to 16,984 per dollar as of 3:39 p.m. in Hanoi, according to data compiled by Bloomberg. The dong fell 0.91 percent this week.
With storm clouds gathering over the global economy, the Vietnamese government has been taking aggressive action to prop up its economy and analysts said the widening of the band is aimed at supporting growth by making exports more competitive.
“The dollar may continue to gain against the dong but it is unlikely to trade higher than VND17,000 a dollar,” said Le Duc Tho, head of the investment department at Vietnam Bank for Industry and Trade, the country’s fourth-biggest lender by assets. “Given the current state of Vietnam’s foreign-currency reserves, the government can keep the dong value in a way that favors exporters and minimize risks to the economy.”
The central bank set the reference rate for Friday’s trading at VND16,503 per dollar, compared with 16,511 Thursday, according to its website.
“The central bank’s move is an indication that the government is taking stronger measures to beef up exports amid slower global demand,” said Pham Dang Truong, an analyst at Hanoi-based Habubank.
The move followed the central bank’s Wednesday cut in the benchmark interest rate, the base rate, by one percentage point to 12 percent – the second time in two weeks it has cut rates.
“As in China, growth is the policy priority,” ING said in a research note.
The dong has fallen by less than 6 percent against the dollar this year, constrained by tight exchange controls. Some currencies in Asia have fallen much further.
Investors trading offshore non-deliverable forwards PNDG expected the dong to fall nearly 20 percent against the dollar from Friday’s mid-point in the coming year, with 12-month contracts at 19,500/20,500.
Vietcombank, the country’s top bank for foreign trade, said in a statement it would sell the dollar for less than VND17,000 per dollar on Friday and state-run BIDV said it would sell dollars for no more than VND16,950, slightly less than the 3 percent ceiling.
HSBC expects further cuts
The State Bank of Vietnam may cut the benchmark interest rate to as low as 10 percent by early January to maintain economic growth, Prakriti Sofat, an economist at HSBC, wrote in a note dated November 5.
The recent rate cuts are “likely the start of an easing cycle,” wrote Singapore-based Sofat. “The easing in policy rates and onwards to lending rates will work to ease the pressure on local corporates and support economic growth.”
Vietnam this month cut the economic growth target to 6.7 percent this year from 7 percent. Last year the economy expanded 8.5 percent, the quickest since 1996.
Concerns over a slowdown in economic growth are “unlikely to fade anytime soon,” making further rate cuts likely, JPMorgan Chase & Co. said this week.
In 2009 the government expects the economy to expand 6.5 percent. The Vietnamese economy is hampered by “the deteriorating outlook for the global economy, and also domestic factors such as previous tightening, and weak equity and property markets,” Sofat said in her note. “It should also be remembered that interest-rate reductions usually take several months to have an effect.”
Thanh Nien, VNA
|
