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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Vietnam devalued the dong on Wednesday for the third time this year as authorities moved to bolster a languid export sector facing fresh challenges from a surprise devaluation of the Chinese yuan.The State Bank of Vietnam (SBV) said the intervention was also in anticipation of the U.S. Federal Reserve raising rates. Vietcombank, the country’s biggest lender by market value, lost 1.88 percent while property firm Vingroup declined 2.4 percent.
“The Vietnamese dong’s exchange rate now has sufficiently large ground to be flexible in front of adverse impacts on the worldwide and domestic markets not only from now to the year end, but also to the first months of 2016”, the central bank said in a statement. Here is a snapshot of the VN Index at midday (0431 GMT).
The SBV allowed 1-per cent currency depreciations in January and May.
Vietnam’s government is hopeful that the devaluation will help boost exports from the country, which have been suffering in recent months.
Indeed, Vietnam’s aggressive move has been widely interpreted as a blatant attempt to keep its exports competitive in the wake of China’s historic 2 percent currency devaluation last week. Additionally, in July, Vietnam saw a US$300 million trade deficit. In the six months through June, the economy grew 6.28 percent. Malaysia and Indonesia have seen a 14.7 percent and 10.5 percent drop respectively in their currencies.
China, Vietnam’s top trading partner, rattled global financial markets when it devalued its currency by almost two per cent on August 11, heightening 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.
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Reported by RFA’s Vietnamese Service.
