The Vietnamese dong’s recent rally suggests the market sees “very little chance” of a devaluation in the next three to four months, according to Standard Chartered Plc.
The currency has strengthened 1.4 percent in the past month, at the official exchange rate, according to official prices from banks data compiled by Bloomberg. On the so-called black market, it gained 2 percent during April, according to data from Viet Capital Securities in Ho Chi Minh City.
The dong has been devalued four times in the last eighteen months, most recently in February, when the currency’s value was cut by about 7 percent. Recent government measures have discouraged the holding of U.S. dollars and boosted the Vietnamese currency, said Louis Taylor, the Ho Chi Minh City-based chief executive of Standard Chartered Bank for Vietnam, Laos and Cambodia.
The dong’s rally “reflects people’s views that in the next three to four months, there’s very little if any chance of another devaluation,” Taylor told reporters yesterday in Hanoi. The government measures are “increasing confidence in the currency and underpinning its value,” he said.
The government has increased lenders’ reserve-requirement ratios for foreign currencies and introduced an interest-rate cap of 3 percent for dollar-denominated deposits. It’s also prohibited the lending of gold and is phasing out gold deposits at banks.
“The interest-rate differential between dollars and dong is attractive enough to make people want to hold dong,” Taylor said. “Whether there is another devaluation later in the year will depend on how long that sentiment lasts.”
Central bank governor Nguyen Van Giau said on May 2 that the foreign-exchange market has been “stable and within the government’s control, especially during the past four weeks.”
The dong weakened 0.1 percent to 20,620 per dollar as of 11:23 a.m. in Hanoi, according to prices from banks compiled by Bloomberg.