Vietnam rules out devaluing dong, threatens strong intervention

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Vietnam's central bank said it has no plans for a repeat of last month's dong devaluation, the first since 2011, and pledged to support the currency.

"The State Bank of Vietnam affirms that it isn't going to adjust its dong-dollar exchange rate and will take determined measures to stabilize the rate," Deputy Governor Le Minh Hung said in a note posted on the State Bank of Vietnam's website late yesterday. "That includes strong intervention," he said, adding that foreign-exchange reserves "are at high levels."

The monetary authority weakened its dong reference rate by 1 percent to 21,036 per dollar on June 28 to support exports and help revive an economy that grew last year at the slowest pace since at least 2006. The currency is allowed to diverge by as much as 1 percent from the fixing, which had prior to the devaluation been set at 20,828 since December 2011. Last month's change aimed to "improve the balance of payments and increase foreign-exchange reserves," the central bank said at the time.

The State Bank of Vietnam forecasts the country will have a $5 billion balance of payments surplus in 2013, easing pressure on the dong, Hung said in the note, which was a transcript of an interview conducted with him. The government estimates the trade deficit will be $9 billion this year and narrow to $1.2 billion in 2014.

The dong traded at 21,233 per dollar as of 11:14 a.m. in Hanoi, little changed from 21,236 yesterday, according to prices from banks compiled by Bloomberg. It earlier touched a record-low 21,243 for the fifth day in a row, within 0.03 percent of the weak end of its permitted trading band. The reference rate has been lowered by 22 percent in the past five years.

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"Another devaluation of the dong may not happen in the next three months, but after three months it is another story," Nguyen Duy Phong, a Ho Chi Minh City-based analyst at Viet Capital Securities Co. said by phone today. "We will have to look at some factors including the trade deficit and domestic gold demand at that time."

The currency will weaken a further 2 percent to 3 percent by the end of the year, Michael Kokalari and Hang Vu, Ho Chi Minh City-based analysts at Maybank Kim Eng Securities Inc., wrote in a July 3 research note.

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