Vietnam’s dong fell toward the brink of its permitted trading range as a ban on interest payments on dollar deposits held onshore failed to cool speculation the currency is poised for its fourth devaluation in a year.
The State Bank of Vietnam cut the dollar deposit rate cap to zero from 0.25 percent for individual accounts, effective Friday, it said in a statement on its website late Thursday. The dong fell 0.14 percent this week to 22,532 a dollar as of 9:57 a.m. in Hanoi, prices from local banks show. The currency, which can trade as much as 3 percent either side of a daily fixing, has declined to within 0.2 percent of the lower end of the band every day this week.
Asian emerging-market currencies have been dropping in the run-up to this week’s Federal Reserve rate increase and as Chinese authorities guide their exchange rate lower via weaker fixings. A devaluation of the yuan in August prompted Vietnam to follow suit just days later. The falling yuan is putting pressure on the dong and another devaluation of the Vietnamese currency is likely early next year, said Dao Duc Manh, a foreign-currency trader at National Citizen Bank in Hanoi.
“The dollar rate cap reduction yesterday won’t have much impact in the short term,” he said. “Those who intend to hoard dollars will still do so because the rate cap was already low before the cut.”
The central bank cut the dollar deposit rate cap from 0.75 percent to 0.25 percent on Sept. 27. It lowered the limit on non-credit institutional dollar deposits to zero percent at that time.
The monetary authority will continue with measures to keep the dong and interest rates stable, Deputy Governor Nguyen Thi Hong said in a statement released Thursday evening. The State Bank of Vietnam has seen “positive developments” in the supply and demand of foreign currencies in the Vietnamese money market recently, she said, citing a 17 percent increase in disbursed foreign investment in November and a trade surplus.
The dong will remain under pressure as the Fed will keep raising rates and China may seek a weaker yuan to revive its economy, said Hoa Hung Cuong, an analyst in the treasury department at Military Bank in Hanoi. The dong will probably be devalued early next year, he said.
The central bank wasn’t immediately available for comment on the devaluation speculation on Friday after several telephone calls to officials including Deputy Governor Hong.
Vietnam’s dong has dropped 5.1 percent this year, trailing declines of 19 percent in Malaysia’s ringgit, 12 percent in Indonesia’s rupiah and 9 percent in the Thai baht. The central bank devalued by weakening the fixing by 1 percent in January, May and August. It also widened the dong’s trading band to 3 percent from 2 percent in August.