Vietnam devalued the dong for the third time this year and widened the currency’s trading band, the latest sign of stress in Asian exchange rates after China depreciated the yuan last week.
The State Bank of Vietnam weakened its reference rate by 1 percent to 21,890 dong per US dollar and increased the scope for fluctuations to 3 percent on either side, after doubling the range on Aug. 12.
“The dong will have enough room to fluctuate more flexibly to cope with negative impacts from international and domestic markets, not only from now until the rest of the year, but also in early months of 2016,” the monetary authority said in a statement yesterday.
The dong fell 1.3 percent to 22,390 as of 1:52pm in Hanoi, extending its drop this month to 2.6 percent, according to data compiled by Bloomberg.
Malaysia’s ringgit leads regional losses so far this month with a 6.4 percent slide.
While the latest devaluation will allow the dong to weaken without pressuring the central bank to intervene, further policy measures cannot be ruled out should the yuan depreciate sharply, according to Australia & New Zealand Banking Group Ltd.
“The policy action today is positive in its promptness in response to China’s devaluation,” Australia & New Zealand Banking Group Ltd analysts Eugenia Fabon Victorino and Irene Cheung said in a research note. “As a preemptive move, the central bank may have taken into account a possible interest rate hike by the Fed in September.”
The Vietnamese currency has declined 4.5 percent this year, putting the country’s exporters at a relative disadvantage to those in nations like Malaysia and Indonesia, whose currencies have fallen 15 percent and 10 percent respectively.
The Australia & New Zealand Banking analysts said that the dong could depreciate by a maximum of 5.1 percent this year, compared with annual declines of about 1.3 percent in the previous two years.
Vietnam’s GDP rose 6.44 percent in the second quarter from a year earlier, quickening from a revised 6.08 percent pace in the previous three months, official data show.
In the six months through June, the economy grew 6.28 percent.
The central bank said it “will take comprehensive measures” and “is ready to sell foreign currencies when needed to stabilize the money market and keep the dong’s rates within the allowed band.”
“The dong will have enough room to fluctuate more flexibly to cope with negative impacts from international and domestic markets, not only from now until the rest of the year, but also in early months of 2016,” the bank said in a statement yesterday.
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