The State Bank of Vietnam yesterday reduced the dong’s reference rate for the first time since August, after saying over the weekend that it is moving to a more market-based methodology in setting a daily reference rate versus the US dollar.
It lowered the fixing by 0.03 percent to 21,896 against the greenback yesterday, after the currency sank to the limit of its permitted trading range late last month. The monetary authority had kept the rate unchanged since Aug. 19, when it cut the fixing by 1 percent and increased the currency’s trading range to 3 percent on either side.
That followed another band widening on Aug. 12. The central bank also cut the reference rate by 1 percent in both January and May last year. The currency ended the year at 22,495 per US dollar, 2.7 percent weaker than the central bank’s Thursday reference rate of 21,890. It closed little changed yesterday at 22,505.
“The dong’s daily reference rate will make it easier for market stakeholders,” Bank for Investment and Development of Vietnam head of treasury Do Ngoc Quynh said by telephone. “It also helps policy makers avoid accumulated pressure on the dong and allows them to be more proactive in coping with changes in global markets.”
The move comes as tightening monetary policy in the US boosts demand for the US dollar and a depreciating yuan drags currencies lower across Asia. The dong’s 4.8 percent loss last year compares with slides of 19 percent for Malaysia’s ringgit and 10 percent for Indonesia’s rupiah, the region’s two worst-performing currencies.
Supporting the exchange rate has come at a cost to Vietnam’s foreign-exchange reserves, which tumbled by US$6.7 billion to US$31 billion in the third quarter, Hong Kong-based Asia at Natixis SA senior economist Trinh Nguyen said.
The new methodology is to calculate the daily reference rate based on a weighted average of dong prices in the interbank market the previous trading day and prices of eight major foreign currencies at 7am in Hanoi, central bank head of monetary policy Bui Quoc Dung said at a briefing in the city yesterday. The eight currencies are from Taiwan, the US, China, the EU, Japan, South Korea, Thailand and Singapore, he said.
The State Bank is also to introduce three-month forward sales of US dollars to commercial banks at the daily rate plus an additional 1 percent, Dung said. Commercial banks are to be allowed to cancel their forward contracts during the three-month period, he added.
The rate is also to reflect domestic and international money-market developments, the central bank said in a statement over the weekend.
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