Vietnam says recent dong weakening "unreasonable'

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The Vietnamese dong's slide in the last two weeks was "unreasonable" and driven by sentiment rather than supply or demand, the central bank said.

The so-called black market exchange rate for the currency reached 19,140 per dollar on July 2, from 18,890 on June 23, the State Bank of Vietnam said, without giving a current level. The dong traded at 19,175 in the black market, according to an information service run by Vietnam Posts & Telecommunications, compared with an official rate of 19,075.

The central bank devalued the currency in November and again in February. A disparity between the official and black- market exchange rates, which persisted as a reduction in dong interest rates made holding dollars more attractive, has narrowed, the World Bank said in a June report that cited a "gradual return" of confidence in the dong.

The dong exchange rate was affected by "sentiment and unreasonable market expectations," the central bank said in a statement on its website Friday. That "led to the unreasonable increase in the dong-dollar exchange rate," it said.

The State Bank of Vietnam said "the safety of liquidity of foreign currency in the banking system is ensured" as the current-account deficit narrowed in the second quarter from the previous three months and the capital account showed a surplus for the first half of 2010.

"The surplus in the capital account was always enough to make up for the current-account deficit," the central bank said. "Total foreign-currency revenue was larger than total foreign- currency expenditure."

Vietnam's foreign-exchange reserves fell to the equivalent of seven weeks of imports from coverage of less than two-and-a- half months in December, the International Monetary Fund said June 9, without giving an overall figure. The central bank said it bought a "considerable amount" of foreign currency in the second quarter to help boost the reserves.

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