Vietnam weakens dong by 1 pct against dollar

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Vietnam is weakening the mid-point rate for trading its currency on the interbank markets by 1 percent to 21,036 dong per dollar as of Friday, from the 20,828 level used so far this year, the central bank said.

"The adjustment is aimed at reflecting more accurately supply/demand on foreign currencies, contributing to stabilizing the foreign exchange market," the State Bank of Vietnam (SBV) said in a statement late Thursday announcing the mid-point rate change.

Dollar/dong transactions can move in a band of plus or minus 1 percent around the midpoint set daily by the central bank. With the new midpoint taking effective on Friday, that means within a range of 20,826 and 21,246 dong per dollar.

The central bank had kept the mid-point rate at 20,828 since Dec. 24, 2011.

The biggest devaluation of the inconvertible dong in the past few years was on Feb. 11, 2011, when the SBV trimmed 8.5 percent off the value to counter a widening gap between official and black market rates.

Bankers said they had expected the central bank to allow the dong's depreciation due to difficulties in buying dollars on the interbank markets since late May.

"For banks, it reflects exactly what they are expecting. We could consider it good news for banks," said economist Dinh Tuan Minh at Hanoi-based Military Bank.

In recent months, the SBV has imported a large amount of gold to meet demand by commercial banks, which by law must return all gold to depositors by June 30. Importation of gold has cut into the central bank's foreign reserves, Minh said.

Vietnam's string of trade deficits this year has boosted demand for the U.S. dollar and weakened the dong, the SBV said on June 17.

In 2012, Vietnam had a trade surplus but monthly deficits resurfaced in February, peaked at $936 million in April and continued last month and in June, based on government data.

The dollar has been quoted near the daily ceiling at 21,035/21,036 dong on the interbank market in recent weeks, showing a strong demand for dollar. At 21,035 dong per dollar, the dong has fallen 1.05 percent since the end of 2012.

The central bank has said its target was to keep the dollar/dong exchange rate stable, fluctuating within a band of 2-3 percent for the whole of 2013.

It also aimed to further reduce dollarization and discourage people from holding dollar deposits in banks. On Friday, banks will have to cut the interest rates on dollar deposits by between 0.25-0.75 percentage point, following a central bank ruling.

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