Skip to content

Vietnam Devalues Dong for Second Time in 2015 to Aid Exports

Updated on

Vietnam Devalues Dong for Second Time in 2015 to Aid Exports

The State Bank of Vietnam devalued the dong for the second time this year in a bid to maintain export competitiveness and accelerate economic growth.

The central bank weakened its reference rate 1 percent to 21,673 dong a dollar, effective Thursday, it said in a statement. The Vietnamese currency is allowed to trade as much as 1 percent either side of the fixing. The dong fell 0.1 percent to 21,673 as of 3:27 p.m. in Hanoi, according to data compiled by Bloomberg.

“It’s very important for Vietnam to manage its export competitiveness,” said Dariusz Kowalczyk, a Hong Kong-based senior economist at Credit Agricole CIB. “The impact will not be strong because it’s only one percent but it will provide help to exporters at the margin and will support the country’s external position as well as economic growth.”

Vietnam recorded its slowest expansion in overseas sales in the the first four months of the year since 2010. The dong has declined 1.3 percent in 2015, putting the country’s exporters at a relative disadvantage to those in nations like Indonesia and Malaysia, whose currencies have fallen 5.7 percent and 2.9 percent, respectively.

Vietnam’s government bonds rallied after the devaluation. The yield on the five-year notes fell 17 basis points to 5.92 percent and that on the two-year securities dropped four basis points, or 0.04 percentage point, to 5.48 percent, according to daily fixings from banks compiled by Bloomberg. The country’s VN Index of stocks closed up 0.7 percent.

Growth Targets

The exchange rate was adjusted “to proactively implement social-economic development targets,” the central bank said in the statement. The currency was last devalued, also by 1 percent, on Jan. 7. Central bank Governor Nguyen Van Binh said in December that the regulator wouldn’t weaken the dong more than 2 percent in 2015.

The decision happened “slightly earlier,” than expected, Paul Mackel, head of global emerging markets foreign-exchange research at HSBC Holdings Plc in Hong Kong, wrote in a research note Thursday. “We don’t expect further policy moves from the State Bank of Vietnam this year.”

Vietnam’s government is targeting a 10 percent increase in exports in 2015 to help achieve economic growth of 6.2 percent, compared with expansion of 5.98 percent in 2014. Overseas sales rose 8.2 percent in the four months through April and the country recorded a trade shortfall of $3 billion over the period, government data show. Shipments from manufacturers such as Samsung Electronics Co. boosted Vietnam’s exports by 13.6 percent last year.

‘Good Time’

“The devaluation is not a bad thing because there is some deterioration in the trade balance,” said Irene Cheung, a senior foreign-exchange strategist at Australia & New Zealand Banking Group Ltd. in Singapore.

Vietnam’s inflation has remained below 1 percent in the first four months of 2015, slowing from 5.45 percent at the beginning of last year, official data show.

The dong closed at 21,670 a dollar on Tuesday, near the 21,673 level that was the weakest it could trade at prior to the devaluation. It has closed within 0.4 percent of that level on every day over the last two weeks.

“It’s a really good time to devalue the currency because the pressure on the dong has been holding up for weeks, or even months,” said Alan Pham, the Ho Chi Minh City-based chief economist at VinaCapital Group, Vietnam’s biggest fund manager.

(Updates with bond and stock moves in fifth paragraph)