It said the bank was widening the trading band – effectively allowing the dong to weaken more – “in order to proactively lead the market and pre-empt negative impacts from the possible Fed rate increase”.
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Export-reliant Vietnam saw shipments grow 8.9 percent in that period, below the government’s 10 percent target.The SBV said the dong’s exchange rate had “sufficiently large ground” to be flexible into next year. The trading band has now has been widened to 3% from 2%, per Reuters.
“After the strong devaluation of the yuan, Vietnam’s domestic market sentiment is still very much concerned about the impact of the US Federal Reserve’s rate increase”, the central bank said in its statement.
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.
The rate adjustment will further ease the pressure on the central bank to intervene in the currency market, depleting the foreign reserves now at $37bn (£23.7bn, €33.5bn), according to economists at ANZ bank.
The move comes just over a week after China made a similar move with the Yuan, following a sharp drop in exports in July.
Devaluations Demetrios Efstathiou of ICBC Standard Bank said he expected a further 5-6 per cent devaluation of the tenge by the end of the year, but even this would not be sufficient.
Vietnam’s central bank had depreciated the dong by one percent in both January and May.
It was the third time the SBV has devalued the dong this year, which has seen a total depreciation of 5% against the dollar.
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Vietnam’s response “will help the authorities achieve their broader goal of maintaining overall macroeconomic and inflation stability”, said Jonathan Dunn, the International Monetary Fund representative for Vietnam. As a result, the country’s exporters were at a relative disadvantage. Like China, Vietnam also acts as a low-priced producer and earned some edge over China in recent times as Chinese wages are on the rise.
