Vietnam dong-dollar reference rate set at weakest since 2005

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Vietnam set its reference rate at the weakest level since at least 2005 as it seeks to narrow the gap with the unofficial rate amid downward pressure caused by a widening trade deficit and maturing dollar loans.

The State Bank of Vietnam on Thursday set the daily fixing 0.02 percent weaker at 20,738 per dollar, lowering it for the 10th time this month after keeping the rate unchanged at 20,628 throughout September, according to its website. The dong is allowed to trade up to 1 percent on either side of that rate.

In the so-called black market, the currency traded as low as 21,470 per dollar at gold shops in Hanoi Wednesday, compared with 21,280 on Oct. 1, according to a telephone information service, known as 1080, run by state-owned Vietnam Posts & Telecommunications.

"They want to keep that gap between the black-market rate and the upper band of the official rate very close, maybe only a 1 percent difference," Alan Pham, chief economist at VinaCapital Investment Management Ltd., said in an interview in Hanoi on Oct. 18. "Right now the difference is still about 2 percent. They have to bring it down more."

"˜Not proactive'

The central bank was "not proactive in the past," when it kept the reference rate steady throughout September, while the dong weakened to as low as 21,500 in the black market, Pham said. The monetary authority will likely be flexible in setting the reference rate in the final three months of the year, he said.

The dong "may come under downward pressure" as foreign-exchange borrowings mature toward the end of the year, Tomoyuki Kimura, the Asian Development Bank's country director for the Southeast Asian nation, said Wednesday in Ho Chi Minh City.

Vietnam's foreign-exchange reserves were $15.2 billion at the end of June, Kimura said. Hong Kong, which also manages its exchange rate versus the US currency, had holdings of $277 billion at the end of last month. Vietnam's trade deficit jumped to $1 billion last month from a revised $396 million in August, government data show.

The dong fell 0.02 percent to 20,943 per dollar as of 8:57 a.m. in Hanoi on Thursday, the weakest level in Bloomberg data going back to 1993. The currency has dropped 0.53 percent this month.

The central bank sold about $150 million into the local-currency market this month to stabilize the dong, the Thoi Bao Ngan Hang newspaper, an official publication of the bank, reported on Oct. 14.

The country devalued the dong for the fourth time in 15 months on Feb. 11, by about 7 percent. Another devaluation of more than 1 percent has been ruled out for 2011, according to a statement on the central bank's website on Aug. 29.

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