Vietnam likely to devalue dong by August: ANZ

Vietnam will probably devalue the dong by about 4 percent within three months in a bid to boost exports and narrow the gap with free-market exchange rates, Australia & New Zealand Banking Group Ltd. said.

The nation’s central bank in December devalued the dong by 3 percent, and let the currency drop 8.5 percent last year by setting a weaker daily exchange rate.

The dong traded at about VND17,768 per dollar on Wednesday, down from VND17,483 at the end of 2008.

The widening gap between that and the official rate means traders are reluctant to sell dollars on the interbank market, ANZ said Wednesday.

“Something has to give,” wrote Henderson, Director of currency and rates strategy for Asia, and Gruenwald, chief economist for Asia, in a note dated Wednesday. “The authorities are likely to sanction further weakening in the dong.”

The State Bank of Vietnam will probably devalue the official rate by about 4 percent, allowing the dong to trade as weak as VND18,500 to the dollar, Henderson and Gruenwald said.

The central bank  on Wednesday fixed the reference rate at VND16,938. The currency can trade up to five percent either side of that rate.

The devaluation may take place within the next three months, according to a chart included in Henderson and Gruenwald’s research note.

Demand for dollars

A weaker official rate for the dong would help address an imbalance between supply and demand for the dollar in Vietnam, as well as “support an economic recovery” by helping exports, ANZ said.

“Onshore demand for dollars has recently spiked in Vietnam’s unofficial markets,” Henderson and Gruenwald said in the note.

“Importers have turned to the parallel market because banks do not have sufficient dollars available to sell.”

The dong’s liquidity has fallen recently, Peter Tebbutt, a Hong Kong-based senior director at Fitch Ratings, said in an interview last week during a visit to Ho Chi Minh City.

Vietnam’s exchange rate is heading for “a period of increased volatility,” HSBC Holdings Plc said last week.

thanhnien, bloomberg

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