Vietnam devalues dong to protect exports, offset China's yuan action

Reuters

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The dong has now weakened around 3 percent in both the interbank and the unofficial markets. File photo The dong has now weakened around 3 percent in both the interbank and the unofficial markets. File photo

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Vietnam devalued the dong for the third time this year on Wednesday, as authorities sought to support a languid export sector facing fresh challenges from a surprise devaluation of the Chinese yuan.
The State Bank of Vietnam, the nation's central bank, also widened the dollar/dong trading band for the second time in a week, underscoring concerns a weaker yuan could further inflame a bloated trade deficit.
China, Vietnam's top trading partner, rattled global financial markets when it devalued its currency by nearly 2 percent on August 11, heightening worries of a global currency war.
On Wednesday the State Bank of Vietnam lowered the official mid-point rate by 0.99 percent to 21,890 dong per dollar and widened the trading band to 3 percent from 2 percent.
The dong stood unchanged at 22,085/22,105 per dollar on the interbank market at 10:22 a.m., while on the unofficial market it fell to 22,250/22,400 per dollar, from 21,840/21,870 on Tuesday.
Export-reliant Vietnam posted a trade deficit of $3.53 billion in January-July, compared with a $1.59 billion surplus in the year-ago period. Shipments grew 8.9 percent in the first seven months, below the government's 10 percent target.
The weaker yuan has sparked concern of more Chinese goods flooding the southern neighbor's market, putting further pressure on the trade balance.
"The Vietnamese dong's exchange rate now has sufficiently large ground to be flexible in front of adverse impacts on the international 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.
The moves help "ensure the competitiveness of Vietnamese goods," it said.
Vietnam had a trade deficit of $19.33 billion with China in the first seven months of 2015, versus a deficit of $14.88 billion a year ago.
"The devaluation is reasonable since many countries competing with Vietnam in export have devalued their currency," said Nguyen Thanh Lam, deputy manager of retail division at Maybank Kim Eng Securities.
The previous mid-point rate had been in place since May 7 when the central bank allowed a 1-percent currency depreciation. The first devaluation in 2015 was also 1 percent on January 7.
With Wednesday's new band, the dong could fall to 22,547 per dollar in interbank deals, or 2 percent down from the previous day. The band had been doubled to 2 percent on August 12.
The dong has now weakened around 3 percent in both the interbank and the unofficial markets, against a central bank's pledge to let the currency slip 2 percent in 2015.

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