Vietnam may adjust reference rate 5-6pct, weakening dong

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Vietnam's government may weaken the dong this year as gold buying puts downward pressure on the currency, according to economists who advise the prime minister.

The country may adjust the dong-dollar reference rate by five percent to six percent in 2012, the National Financial Supervisory Commission wrote in a report released in Hanoi on Monday. The currency is allowed to trade up to 1 percent on either side of the fixing. Fluctuations in gold prices can "increase pressure on the exchange rate, widen the trade deficit and negatively affect the overall balance of payments," the researchers, led by Chairman Vu Viet Ngoan, wrote.

The dong declined 7.4 percent last year, the most since 2008, as policy makers devalued the currency by about 7 percent on Feb. 11 to help narrow the gap between the official and black-market rates.

The local gold price frequently exceeded the international price during the second half of 2011, resulting in increased demand for dollars as Vietnamese seek to import the precious metal. The dong was unchanged at 21,030 per dollar as of 4:06 p.m. in Hanoi Monday, according to data compiled by Bloomberg.

High inflation is also "putting depreciation pressure on the domestic currency," the report said. Consumer prices gained 18.1 percent in December from a year earlier, the fastest pace in Asia, official data show. Devaluing the dong won't significantly boost exports because many finished goods require imported raw materials, according to the report.

Vietnam had a balance-of-payments surplus of $2.5 billion last year, the report said. While that was an improvement on the previous year, this situation is not stable because of a dependence on short-term capital inflows, it said.

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