Vietnam will lower the mid-point rate for trading its currency on the interbank market by 1 percent on Thursday to support exports, the key driver of the economy, the central bank said.
The move will lower the dong to 21,246 per dollar. The State Bank of Vietnam (SBV) announced the change in a late-night posting on its website (www.sbv.gov.vn) on Wednesday.
"In the context inflation is being kept at a low level, in order to support exports in the last six months, the State Bank proactively adjusts the exchange rate," the central bank said.
Dollar/dong transactions can move in a band of plus or minus 1 percent around a midpoint rate set daily by the central bank. With the new midpoint taking effect on Thursday, that means within a range of 21,034 to 21,458 dong per dollar.
The central bank has kept the mid-point rate unchanged at 21,036 since June 28 last year.
The biggest devaluation in recent years came when the value of the inconvertible dong was lowered on Feb 11, 2011 by 8.5 percent against the dollar, to counter a widening gap between official and black market rates.
In the first months of 2014, Vietnam's monetary and foreign exchange markets remained stable, with a trade surplus of $1.6 billion recorded in the first five months and a surplus of more than $10 billion in the country's balance of payments, the central bank said in the statement.
In recent weeks, banks have been quoting the dong against the dollar near its floor of 21,246 on the interbank market. The dollar has also been rising on the black market.
In early June, Governor Nguyen Van Binh had to reassure the market that the dong's weakening was for psychological reasons alone, partly because of tension with neighbouring China, with which Vietnam recorded two-way trade of $50 billion last year.
The two countries have been embroiled in a bitter dispute since early May, when China moved a $1 billion oil rig into a stretch of the South China Sea claimed by both communist nations. Talks between senior Chinese and Vietnamese officials made little progress on Wednesday.
SBV Governor Binh reiterated a policy mentioned at the start of 2014 that the central bank would keep any exchange rate adjustment within 2 percent this year.
"After adjusting the exchange rate, the State Bank will ensure to implement measures and policy instruments in a synchronised way to stabilise the exchange rate and the foreign exchange market on the new rate basis," said the statement on Wednesday.