Vietnam allows weaker dong, sets new reference rate

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Vietnam set a lower reference rate for the dong for the third time since November, which may allow the currency to weaken and help reduce the trade deficit.

The State Bank of Vietnam set the daily reference rate 2 percent lower at 18,932 to a dollar, starting Wednesday, according to a statement posted on its web site on Tuesday. The currency is still allowed to trade 3 percent either side of the reference rate, according to the statement. The dong dropped 0.1 percent to 19,099 at 6:24 p.m. in Hanoi, according to data compiled by Bloomberg.

"The central bank is trying to be proactive," said Alan Pham, chief economist at VinaSecurities, a unit of VinaCapital Investment Management Ltd., in a telephone interview from Ho Chi Minh City. "They want to get ahead of the situation, instead of waiting for crisis to make a move."

The change to the reference rate is to "make a contribution in controlling trade deficit," the central bank said in the statement.

In the so-called black market, the dong weakened to 19,335 at gold shops in Ho Chi Minh City in the afternoon, compared with 19,265 Monday, according to a telephone-information service known as 1080 run by state-owned Vietnam Post & Telecommunications.

"There are signs of an increase in the black market rates recently and this decision would send a signal to the market that the central bank is taking the measure seriously in stabilizing the dong," Pham said.

Vietnam's trade deficit widened in July from the previous month on falling exports. The shortfall reached $1.15 billion from a revised $742 million in June. For the seven months through July, the deficit was $7.4 billion, almost twice the figure for the same period last year.

Governor Nguyen Van Giau on Feb.11 depreciated the dong by lowering the reference rate 3.4 percent to 18,544.

The central bank hasn't changed the daily reference rate for the dong since Feb. 11.

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