Vietnam’s central bank devalued the dong for the first time in a year in a bid to spur exports and vowed to ensure the stability of the currency as tension rises over a Chinese oil rig in disputed waters.
The State Bank of Vietnam devalued the dong by weakening its reference rate for the currency by 1 percent to 21,246 per dollar, according to a statement on its website yesterday. The change is effective today, allowing the dong to fluctuate as much as 1 percent on either side of the central bank’s reference rate. It can now trade as low as 21,458 per dollar.
Vietnam’s policy makers are trying to bolster an economy that the World Bank estimates will grow 5.4 percent this year, slower than an official target of 5.8 percent. Last month’s violent protests following China’s placement of an oil rig in disputed waters halted production at foreign-owned factories and caused Chinese workers to flee. The government will closely monitor sectors that may be affected and take “suitable actions,” Deputy Prime Minister Nguyen Xuan Phuc said June 12.
“After adjusting the dong’s exchange rate, the State Bank will take comprehensive measures and use monetary tools to ensure the stability of the foreign currency market,” the statement said.
The monetary regulator last devalued the dong on June 28 of last year by weakening the reference rate 1 percent to 21,036 per dollar, after keeping the fixing unchanged since December 2011. The central bank had said earlier that it planned to weaken the dong as much as 2 percent for the whole year.
Balance of Payments
In the first half of this year, “the money market was stable and supply of foreign currencies was sufficient,” with the country’s total balance of payment surplus at more than $10 billion, the central bank said in yesterday’s statement. The government targets at 10 percent increase in exports this year to $145.4 billion.
While China is the nation’s largest trading partner, Vietnam must reduce its dependence and develop a contingency plan to cope with any “hiccups, turbulence,” Vietnam Chamber of Commerce and Industry Chairman Vu Tien Loc said in May. Prime Minister Nguyen Tan Dung said in an interview last month that his administration had prepared evidence and was ready for legal action against the world’s second-largest economy.
The dong strengthened 0.1 percent to 21,213 per dollar at the close of trading in Hanoi, according to data from banks compiled by Bloomberg. The currency has dropped 0.6 percent this year. The benchmark VN Index has slumped 5 percent in the past three months. It slipped 0.4 percent yesterday.