The Vietnamese dong dropped to a record low after the central bank devalued the currency by 3 percent on Thursday to help spur exports.
The currency had its biggest two-day slide in a decade as the State Bank of Vietnam signaled it favors a weaker currency to help narrow a record trade deficit. A government report on Wednesday showed the economy expanded at the slowest pace in nine years.
“There may be a strong turbulence in the exchange rate of the dong in the first half of 2009 after the central bank’s move,” said Nguyen Manh, an analyst at Bank for Investment & Development of Vietnam in Hanoi.
“But the government is capable of stabilizing the currency given its strong foreign reserves and its positive balance of payments,” Manh said.
The dong weakened as much as 1.1 percent to 17,490 a dollar, the lowest since Bloomberg started tracking the exchange rate in June 1993. It traded at 17,425 as of 1:13pm in Hanoi, data compiled by Bloomberg showed. It slid 1.8 percent on Thursday and has slumped 8.1 percent this year.
The central bank fixed the daily reference rate for dong trading at 16,987 a dollar yesterday, according to its Web site, after lowering it by 3 percent yesterday to 16,989.
The currency traded at 17,450 a dollar at money changers yesterday, or the so-called black market, Bao Tin Thanh Van Jewellery Co said.
Policy makers are relying on a weaker currency to help boost shipments of the nation’s garments and coffee. Export growth slowed in the past three months as shrinking global economies slashed demand. Vietnam’s currency policy contrasts with China, which has stalled gains in the yuan, while refraining from weakening it.
China won’t seek a sharp decline in the yuan to aid shipments, an official at the National Bureau of Statistics in Beijing wrote in a report published yesterday.
Vietnam’s trade-account shortfall widened to US$17 billion this year, from US$14.1 billion last year, preliminary figures provided by the government yesterday showed. The economy expanded 6.2 percent, compared with a record 8.5 percent last year, the government said.
“The government is quite clear that it devalued the dong to spur exports and maintain relative stability of the currency,” Manh said. “So, it is very unlikely that it will do it again next year.”
Government bonds fell on Thursday for the first time in five days. The yield on the five-year note increased two basis points to 9.59 percent, according to a fixing price from nine banks compiled by Bloomberg. A basis point is 0.01 percentage point.
Meanwhile, Hanoi signed a free trade deal with Japan on Thursday that will exempt nearly all taxes levied on each other’s goods over the next decade, the government said yesterday.
Under the pact Japan would exempt 95 percent of import taxes on Vietnamese goods and Vietnam would also lift 88 percent of its duties on Japanese goods, the government said in a statement.
The two countries started negotiations on the pact in January last year when Vietnam joined the WTO. Officials from both sides now will seek ratification by their respective parliaments to bring the pact to life early next year, the statement said.
It said trade between Vietnam and Japan is forecast to rise to more than US$16 billion this year, beating an initial target of US$15 billion set for 2010.