Vietnam Vows Dong and Interest-Rate Stability for Growth

Vietnam’s central bank pledged to take “necessary measures” to stabilize the dong and signaled it would refrain from raising interest rates as the Southeast Asian nation struggles to revive economic growth.

The State Bank of Vietnam is also considering raising foreign-ownership limits at weak domestic banks, Deputy Governor Dang Thanh Binh said yesterday in an e-mailed response to questions from Bloomberg News. He cited the examples of Indonesia and Thailand, which raised investor caps to take “advantage of outside funding sources.”

Vietnam is grappling with the slowest economic growth since at least 1999, after the highest level of bad debt among Southeast Asia’s biggest economies curbed lending and hurt businesses. The central bank cut a policy rate in July to support growth, after it devalued the currency the previous month to improve the balance of payments.

“For the remaining months of the year, the State Bank of Vietnam will continue to closely watch market developments and take necessary measures to stabilize the currency market,” Binh said. The authority will “manage policy rates in a manner that maintains the current stability” as Vietnam’s inflation will be “controlled” at around 7 percent this year, he said.

Dong Devaluation

The government is seeking to boost an economy that grew 5.25 percent last year, the slowest pace in 13 years, according to the International Monetary Fund. The central bank devalued the dong by 1 percent in June, the first time since December 2011. It won’t weaken the dong by more than 3 percent this year as it seeks to prevent the hoarding of dollars, it said Oct. 8.

The dong traded at 21,091 per dollar yesterday from 21,100 last week, according to bank data compiled by Bloomberg. The currency has weakened 1.2 percent against the dollar this year, trailing declines of currencies elsewhere in Southeast Asia.

Next year, the central bank “will continue to manage the dong’s exchange rate in line with the supply and demand of foreign currencies in the market and ensure meeting the goals of inflation control, macro-economic stability, reducing the trade deficit and increasing foreign currency reserves,” Binh said.

The government plans to weaken the dong as much as 2 percent by the end of 2013 with the timing “dependent on the market,” Prime Minister Nguyen Tan Dung said in an interview in New York Sept. 27.

Policy Rates

The State Bank cut the repurchase rate in July to 5.5 percent from 6 percent, after reducing the refinancing rate by one percentage point in May. The refinancing rate cut was the eighth since the start of 2012.

The monetary regulator plans to cut policy rates by 2 percentage points annually, it said in May in an e-mailed response to Bloomberg.

The central bank also “encourages foreign banks to invest, buy and acquire stakes and merge with weak local banks,” said Binh.

Premier Dung said in the Sept. 27 interview the government plans to let foreign companies own as much as 49 percent of local banks in the “near future.”

“One of the measures under our consideration to treat weak banks is to mobilize overseas funding and create conditions for foreign investors who have financial capability, good management and prestige to take part in restructuring of weak banks,” Binh said.

To contact Bloomberg News staff for this story: Nguyen Dieu Tu Uyen in Hanoi at uyen1@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

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