Vietnam's central bank said today it won't devalue the dong by more than 3 percent in 2013, as it seeks to prevent the hoarding of dollars and keep the money market stable.
The State Bank of Vietnam devalued the dong by 1 percent in June, by reducing the currency's daily reference rate, to support exports and help revive an economy that grew at the slowest pace since at least 2005 last year. The government plans to weaken the dong as much as 2 percent by the end of 2013 with timing "dependent on the market," Prime Minister Nguyen Tan Dung said in an interview in New York on Sept. 27.
"Since late 2011, the State Bank of Vietnam has targeted to control the dong's exchange rate in a manner that allowed it to weaken no more than 1 percent in the final months of every year," Nguyen Thi Hong, the central bank's head of monetary policy, said in a statement on the regulator's website today. The central bank is planning for the currency to drop 2 percent to 3 percent over the whole year, according to the statement.
"The message is stability," said Tareq Muhmood, the Vietnam chief executive for Australia & New Zealand Banking Group Ltd. in Hanoi. "I don't think they want to get back into that rhythm of ongoing devaluation, which is where we were two, three years ago. Having a stable exchange rate gives stability to foreign and local investors."
The dong was little changed at 21,110 per dollar as of 6:08 p.m. in Hanoi, according to data compiled by Bloomberg. The central bank set the reference rate at 21,036, unchanged since June 28, according to its website. The currency is allowed to trade as much as 1 percent on either side of the fixing, which has been lowered by 22 percent in the past five years.
Vietnam's currency has fallen 1.3 percent against the dollar this year, trailing declines of 16 percent for Indonesia's rupiah, 4.9 percent for the Philippine peso and 4.3 percent for Malaysia's ringgit, data compiled by Bloomberg show.
The central bank's dong-dollar exchange-rate policies have "spurred bank lending and significantly reduced dollar hoardings, helped restoring people's confidence in the dong," the monetary authority said in today's statement. The country will have a $5 billion balance of payments surplus in 2013, easing pressure on the dong, State Bank of Vietnam Deputy Governor Le Minh Hung said in July.