Vietnam's latest trade figures will probably help
the nation's currency, which has been devalued twice since November, Citigroup
The trade deficit narrowed by 15 percent in February
to US$800 million from a revised $945 million in January, according to Feb. 26
figures from the General Statistics Office in Hanoi. Preliminary numbers had put
the January trade shortfall at $1.3 billion.
Concerns about the deficit have hurt the Vietnamese
dong, Nomura Holdings Inc. said last month after the currency was devalued. The
latest trade balance is the best for Vietnam in almost a year, with exports
rising and imports falling on a seasonally adjusted basis, New York-based
Citigroup said in a note dated Feb. 26.
"The narrowing trade deficit is likely to ease some
pressure on the Vietnamese dong," wrote Johanna Chua, the Hong Kong-based head
of Asian economic research for Citigroup. The figures may "buy time for policy
makers to implement the tightening policy gradually."
Vietnam's central bank said on Feb. 25 that it plans
to keep its benchmark interest rate at 8 percent in March. The rate was raised
to 8 percent from 7 percent as of December.
Last month, Citigroup said Vietnam needed to take
"significant" action on interest rates to buoy confidence in the dong. The
currency traded Monday at about 19,050 per dollar, strengthening from 19,075 on
The trade gap narrowed in February "largely thanks
to slowing imports," according to Chua. "Export growth has come back to positive
The figures may have been distorted by seasonal
factors around Vietnam's lunar new year holiday, Chua wrote. Accelerating
inflation may also cut into any improvement in confidence in the dong, Citigroup
said. Demand for dollars will be strong as long as inflation accelerates, said
Australia & New Zealand Banking Group Ltd.
"The devaluation of the dong will have an
inflationary impact going forward," Tamara Henderson, director of currency and
rates strategy at ANZ in Singapore, wrote in a note dated Monday.
Inflation reached 8.46 percent in February, the
highest figure since April 2009.
"Inflation is really the most important number for
the dong, along with the level of interest rates," said Jonathan Pincus, an
economist with the Vietnam program at the Harvard Kennedy School in Ho Chi Minh
City. "If people are concerned about future inflation trends or if interest
rates aren't attractive, they won't hold the dong."
The dong will probably weaken to 20,000 per dollar
by the third quarter, based on Citigroup forecasts.
"Vietnamese businesses are very savvy about currency
speculation," Pincus said. "They can smell trouble for the currency from a mile
away, and they are still jumpy about the dong."