Vietnam Currency Market Stabilizing, Central Bank Chief Says

Vietnamese central bank Governor Nguyen Van Giau said the country’s foreign-exchange market is stabilizing, less than three months after the national currency was devalued.

The central bank’s actions to tighten monetary policy have supported gold and foreign-exchange markets, he told reporters in Hanoi today before a meeting tomorrow of the Asian Development Bank. The central bank has boosted interest rates and introduced new limits on the use of gold in the country.

“Vietnam’s gold and foreign-exchange market has been stable and within the government’s control, especially during the past four weeks,” Giau said. “The government has used all efforts to tame inflation, as the government’s top priorities are to curb inflation and stabilize the macro-economy.”

The central bank this month raised its refinancing rate to 14 percent, up from 13 percent previously and from 9 percent in February. The year-on-year inflation rate reached 17.51 percent in April, the fastest pace since 2008, while the monthly rate was 3.32 percent.

While the monthly inflation rate should start slowing in May, the year-on-year figure may accelerate until the second half of the year, said Ayumi Konishi, the ADB’s Vietnam country director.

“Economic policies always take time to get the actual impact,” Konishi told journalists in Hanoi today.

February Devaluation

The 7 percent devaluation on Feb. 11 was the fourth such move in the last year-and-a-half and was aimed in part at narrowing the gap between official and unofficial exchange rates for the currency. Measured by the official exchange rate, the dong last week completed its best week since at least 1997.

“There is still a gap between the official exchange rate and the market rate, but it’s not as wide as it was previously,” said Alan Young, chief operating officer of Australian-listed steelmaker Vietnam Industrial Investments Ltd.

The failure to follow an August 2010 devaluation of the dong with a tightening of monetary policy caused the gap between the official and market exchange rates for the currency to widen to 10 percent, before Vietnam’s central bank this year took “a series of measures to rein in inflation and increase the supply of foreign exchange to the financial system,” the International Monetary Fund said last week.

Among the measures were a slower projected pace of credit growth; higher interest rates; restrictions on the trading of gold bars; plans to reduce foreign-exchange holdings by state companies; and plans to contain public spending, according to the IMF.

“The outlook for 2011 depends critically on whether the new policy package will succeed in restoring policy credibility, as well as domestic and foreign investor confidence,” the IMF said in a report released on April 28. “The authorities should stand ready to tighten policies further if necessary.”

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