Analysts paint a less than rosy picture for the future value of the dong.
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We will see dong going lower in 2015, said HSBC, which raised their 2015 and 2016 year-end targets to 22,800 and 23,300.
The devaluation of China’s yuan would have a great impact on Vietnam’s balance of trade, and it would become more hard for Vietnam to export to its northern neighbor since the price of its goods would rise by 4 percent, he said.
The SBV allowed 1-per cent currency depreciations in January and May.
The central bank said it “will take comprehensive measures” and “is ready to sell foreign currencies when needed to stabilize the money market and keep the dong’s rates within the allowed band”. In comparison, Thailand’s baht has dropped 8 percent, the Indonesian rupiah has lost 12 percent and Malaysia’s ringgit is 17 percent lower.
Global markets were alarmed when China devalued the yuan by almost 2 percent on August 11, with analysts fearing a further weakening over coming months and heightened worries of a global currency war. Vietnam has a range of FTA in place, and even more now in the negotiation phase, such as the Trans-Pacific Partnership.
Vietnam’s move to devalue its currency and increase exchange rate flexibility was hailed as a “welcome development” by the worldwide Money Fund (IMF) Thursday.
Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. For further information, please email [email protected] or visit www.dezshira.com. As a result, the country’s exporters were at a relative disadvantage.
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As Asian developing countries attempt to fight their way back to stability, amid signs of increasing levels of capital outflows, there are now concerns that currency weakness could expose financial vulnerabilities after years of public and private hard currency borrowing sprees.
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Some economists inside Vietnam said the devaluation was necessary but not a viable long-term solution to ease the nation’s trade deficit.
