Vietnam changes dollar/dong rate setting frequency; dong dips

Reuters

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Vietnam changes dollar/dong rate setting frequency; dong dips

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Vietnam allowed its currency to ease on Monday as it resumed a more flexible foreign exchange policy for interbank dollar/dong transactions, a move that could trigger a gradual devaluation in the local currency.
The State Bank of Vietnam (SBV) set the mid-point rate at 21,896 dong to the dollar, down from 21,890 dong it had kept unchanged since Aug. 12, 2015, when it let the currency ease 1 percent.
The SBV said it will set the mid-point rate on a daily basis to allow more flexibility.
"With the new FX methodology, instead of one-off devaluations as seen in the past, we could see the central bank guiding dollar/dong gradually higher over time," ANZ said in a report on Monday.
The dong eased to 22,490/22,520 per dollar at 0420 GMT on Monday, from 22,480/22,490 on Dec. 31.
Vietnam's $186-billion economy, among Southeast Asia's fastest growing economies, is driven by construction and manufacturing, dominated by textiles, footwear and electronics production for brands such as Samsung, Canon , Nike, Mango and Lacoste.
The central bank lowered the mid-point rate three times in 2015, and widened the dollar/dong trading band to +/- 3 percent of the mid-point to protect exports from a surprise devaluation of the Chinese yuan.
Exports last year grew just 8 percent, below the 10 percent growth target on falling global commodities prices including crude oil and coffee.
By the end of 2015, the dong had several times bottomed out as Vietnam faced the first trade deficit since 2012, estimated at $3.17 billion.
The gap is forecast to jump to $6 billion this year.
ANZ said Vietnam's lower foreign reserves will limit SBV's ability to sell dollar when needed, thus raising "the risk of dong weakness especially in the near term".
It cited the International Monetary Fund's estimate that the country had $31 billion in foreign reserves as of September 2015, down from a government estimate of $37 billion at the end of July.
ANZ said it kept unchanged its forecast that the dong would depreciate 4 percent to 23,450 per dollar at the end of this year.
The dong fell 4.94 percent against the dollar last year on the interbank market, faster than a decline of 1.38 percent the previous year, based on Reuters data.
In December 2009, the SBV replaced the policy of adjusting the mid-point rate on daily basis by setting the rate for a longer period.

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