Dong unlikely to drop more than 5 pct: official

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The Vietnamese government has promised to keep the dong's value stable and it's unlikely the currency will be devalued more than 5 percent over the next eight months, an official said.

The State Bank of Vietnam on February 11 lowered the dong by 3.4 percent against the dollar to better reflect supply and demand on the market, Le Duc Thuy, Chairman of the National Financial Supervision Committee, told Thanh Nien in an exclusive interview.

He said the move had eased concerns that the local currency would be devalued even further.

The dong has traded at around 19,000 per dollar over the past few days, compared with around 19,085 a month ago. Last week the dollar hit its lowest point in more than a year on the black market.

"Lending rates for dong loans are around 15 percent now while the rates on dollar loans are only 7-8 percent," Thuy said.

The gap between the rates are encouraging local companies to take dollar-denominated loans and then sell the dollars to buy materials and pay salaries for their workers,  he said.

"When dollar supply rises and demand falls, the exchange rate certainly has to fall," he said.

"But the risk is that when loan repayment begins, businesses will have to buy dollars, suddenly boosting demand for the greenback. Higher demand will drive the exchange rate up again and the authorities will have to think about how to prevent excessive fluctuations."

Vietnam's trade deficit in the first three months reached $3.5 billion. Last year's deficit was recorded at $12.2 billion.

Thuy said the trade deficit would decline this year as exports are rising, up 1.6 percent in the first quarter. Foreign direct investment disbursements and overseas remittances are also set to grow, he said.

Vietnam's current account deficit will be narrowed and downward pressure on the dong will eased, bringing dollar speculation down, he said.

"However, we should not be too cheerful about recent declines in the exchange rate," he said.

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