The dong may be depreciated by additional 1 percent later this year, if policy makers feel it is necessary, HSBC said in a statement issued on Thursday, betting on a relatively stable dong for the coming months.
The outlook for the dong should be relatively stable in the coming time, given the better balance of flows and build-up of foreign exchange reserves, HSBC said. It warned, however, that lower real interest rates could pose a risk if demand and inflation start to pick up.
The State Bank of Vietnam (SBV), the country's central bank, devalued the dong by weakening its reference rate for the currency by 1 percent to 21,246 per dollar from Thursday.
Foreign exchange inflows have been better, as the trade balance has been relatively neutral, thanks to improving exports as much as soft import growth. Meanwhile, FDI inflows have picked up and have averaged nearly $1 billion per month this year, according HSBC.
Together, these flows have allowed the SBV to increase their foreign exchange reserves buffers, with HSBC’s estimates suggesting that reserves have risen by nearly $10 billion from last year.
“While we do not expect the latest, small depreciation to cause much concern about the path for the dong, there is no doubt a risk that if policy is seen as too loose then concerns about rising inflation and further depreciation could rise,” it said.