Vietnam’s dong has worst week since February on devaluation

23-Aug-2010 Intellasia | BusinessWeek | 7:01 AM Print This Post

Vietnam’s dong had its worst week since February, dropping to a record low, after the central bank devalued the currency for a second time this year to help reduce the trade deficit.

The dong rose today for the first time since August 18, when the State Bank of Vietnam set the daily reference rate 2 percent lower at 18,932 per dollar. government data show the trade deficit in the seven months through July almost doubled to $7.4 billion from a year earlier, while the International Monetary Fund said on June 9 the nation’s foreign-currency reserves have fallen to the equivalent of seven weeks of imports from coverage of less than two-and-a-half months in December.

“The devaluation makes sense, given that the country is still running a sizable deficit and the level of reserves is relatively low,” said Tai Hui, the head of Southeast Asian economic research at Standard Chartered Plc in Singapore. He forecasts the dong will trade near 19,500 for “at least the next several weeks.”

The dong fell 2.1 percent this week to 19,475 per dollar as of 2 p.m. in Hanoi, the biggest five-day decline since the currency was previously devalued on February 11, according to data compiled by Bloomberg. The currency climbed 0.1 percent today after the central bank kept the reference rate unchanged, according to its website. The dong is allowed to trade 3 percent either side of the rate.

Bonds Steady

The currency has slumped 5.1 percent so far this year, the worst performance among 16 currencies in Asia monitored by Bloomberg. Twelve-month non-deliverable forwards rose for a second day, gaining 0.5 percent to 21,291, implying traders are betting on a further loss of 8.5 percent.

In the so-called black market, the dong traded at 19,510 at gold shops in HCM City, compared with 19,260 at the end of last week, according to the 1080 telephone-information service run by state-owned Vietnam Posts & Telecommunications.

Vietnam should “allow freer movement of dong,” Mark Mobius, who oversees about $34 billion as executive chair of Templeton Asset Management Ltd’s emerging-markets group, said yesterday. “That means allowing the market to determine where the dong rate should be. The best way is by changing the regime and allowing people to buy and sell dong on the street at the market rate.”

The central bank devalued the dong by about 3.3 percent in February and by 5 percent in November 2009.

Benchmark government bonds were steady this week, with the yield on the five-year note at 10.64 percent from 10.66 percent at the end of last week, according to a daily fixing price from banks compiled by Bloomberg.

http://www.businessweek.com/news/2010-08-20/vietnam-s-dong-has-worst-week-since-february-on-devaluation.html

 


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