Vietnam Dong Weakens to Record After Devaluation
August 18, 2010, 3:59 AM EDTBy Patricia Lui and Nguyen Kieu Giang
(Updates with bond closing price in the last paragraph.)
Aug. 18 (Bloomberg) -- Vietnam’s dong slid to a record low against the dollar after the central bank devalued the currency for the third time in the past year to help curb a widening trade deficit.
The dong dropped 1.1 percent to 19,320 per dollar as of 2:30 p.m. in Hanoi, according to data compiled by Bloomberg. The State Bank of Vietnam said yesterday it will set the daily reference rate 2 percent lower at 18,932 per dollar from today, according to a statement posted on its website. The currency is allowed to trade 3 percent either side of the rate.
“The idea is to address the trade deficit, which in the past seven months has almost doubled,” said Ho Woei Chen, an economist at United Overseas Bank Ltd. in Singapore. “This triggered concern about the currency and was a sign that the dong had to be devalued in order to boost exports and reduce imports.”
The currency earlier slumped as much as 1.7 percent to 19,425, the weakest level since Bloomberg began tracking it in 1993 and the biggest decline since the last devaluation in February. The 12-month non-deliverable forward weakened 0.9 percent to 21,427, implying traders are betting on a further loss of 10 percent.
In the so-called black market, the dong traded at 19,445 this afternoon at gold shops in Ho Chi Minh City, compared with 19,335 yesterday, according to the 1080 telephone-information service run by state-owned Vietnam Posts & Telecommunications.
Trade Deficit
Exports rose 17.5 percent in the first seven months of the year from the same period in 2009, according to data from the General Statistics Office in Hanoi on July 27. Imports expanded 25.5 percent. The trade deficit was $7.4 billion, almost twice the figure for the same period last year.
“Exports may have been improving, but imports have been improving even faster,” Ho said. “There could be continued pressure on the dong in terms of expectations by the people. The black-market rate is much weaker than the official rate.”
A weaker dong may also help reduce the gap between the exchange rate at banks and in the black market, according to a research note today from VinaSecurities Joint-Stock Co.
‘Too Small’
“The official reason for this action was to help exports, but a 2 percent depreciation is probably too small to achieve that effect,” the note said. “However, it has an important signaling effect, that the State Bank of Vietnam has taken concrete steps to stabilize the exchange rate.”
The dong was last devalued on Feb. 11, when the central bank lowered the reference rate by about 3.3 percent to 18,544. The dong dropped 1.4 percent that day to 18,725 and slid a further 1.8 percent to 19,065 by end-June. The move followed an earlier 5 percent devaluation on Nov. 25, when the trading band was also narrowed to 3 percent from 5 percent.
“After the depreciation in February, the currency market was calm for five months,” the VinaSecurities’ note read. “If history were to repeat itself, the dollar rate would stay stable until the end of 2010.”
“All in all, the 2 percent devaluation came sooner than we had expected, but it was also smaller than we had expected,” Singapore-based Tamara Henderson, head of Asian foreign exchange research at Australia & New Zealand Banking Group Ltd., wrote in a note today. “We continue to expect a move to the 20,000 level in the dollar-dong in the first part of 2011.”
Vietnam’s benchmark government bonds were steady, with the yield on the five-year note at 10.635 percent from 10.647 percent yesterday, according to a daily fixing price from banks compiled by Bloomberg. A basis point is 0.01 percentage point.
--With assistance from Diep Ngoc Pham in Hanoi. Editors: Sandy Hendry, Ven Ram
To contact the reporter on this story: Patricia Lui at plui4@bloomberg.net; Nguyen Kieu Giang in Hanoi at giang1@bloomberg.net
To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net
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