Vietnam's central bank dismisses dong depreciation rumors

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Despite some analysts' expectations that the devaluation of the dong against the dollar would boost exports, Vietnam will not risk a move because it may hurt its current economic policies.

Rumors that the State Bank of Vietnam would sharply depreciate the dong began spreading as soon as some analysts expressed their support for the idea.

Le Xuan Nghia, former vice chairman of the National Financial Supervisory Commission, has said the dong is 23 percent overvalued against the dollar.

The government should adjust the rate or the inflated value of the dong will cause exports to fall, he warned.

In a Dau Tu report on February 6, Trinh Quang Anh, director of a center for economic research at Maritime Bank, asserted that the overvalued dong has been hurting Vietnamese exporters since the second half of last year.

An executive member of the Vietnam Association of Seafood Exporters and Producers, who spoke on the condition of anonymity, said that even firms which deal in Vietnam's key exports like pangasius have been struggling since last year.

The central bank has kept the dong set at 20,828 to the dollar since December 2011, but the dong has rapidly dropped on both official and unofficial markets. The currency is allowed to be traded within 1 percent above or below the official rate.

Eximbank quoted the dollar at 20,960 last Thursday while compared to 20,860 early this month.

Vietcombank increased the exchange rate to 20,970 from 20,865 during the same period.

On the unofficial market, the dong has weakened to over 21,000 per dollar.

Speaking to Tuoi Tre , Nguyen Thi Hong, the central bank's head of monetary policy, said that the dong has dropped amid rumors about a potential currency adjustment.

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It's not the right time to push the dong down due to concerns about inflation, she said, pointing out that the government's top priority this year is to curb prices. The government hopes to keep the inflation below 6 percent this fiscal year.

The central bank's deputy governor Le Minh Hung, said Vietnam has paid a "high price" every time it devalued the dong in the past ten years due to its huge annual imports.

For example, Hung pointed out that the dong's depreciation in 2011 hiked fuel tariffs, contributing to the inflation of 18.3 percent.

The high exchange rate also burdens the public purse as most of the loans taken out by the government are granted in dollars, he added.

The central bank on February 22 made an official announcement that it will not push the dong down and is willing to interfere to ensure that the foreign currency market remains stable.

It said the supply and demand of dollars has stayed constant, while foreign reserves have risen to an all-time high.

It has requested that police investigate the source of rumors about the dong being depreciated against the dollar.

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