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Vietnam Business » Vietnam Financial News » Vietnam Devaluates Dong by 2.09% to Curb Trade Deficit

Vietnam Devaluates Dong by 2.09% to Curb Trade Deficit

This is the second dong devaluation this year after the Southeast Asian country weakened its currency by 3.4% on February 10 as it has been struggling with high trade deficit and trying to curb high inflation at under 8% this year. Earlier, Vietnam also saw its dong devaluation by 5.4% on November 25 of 2009 and two others in 2008.

The State Bank of Vietnam (SBV), the country central bank, said Tuesday on its website that it would devaluate dong by 2.09% to VND18,932/a dollar from current VND18,544 , effective from August 18. The move aims to curb the countrys widening trade deficit, the SBV said in a statement, adding that the dollar trading bench of 3% each side would be kept unchanged. This is the second dong devaluation this year after the Southeast Asian country weakened its currency by 3.4% on February 10 as it has been struggling with high trade deficit and trying to curb high inflation at under 8% this year. Earlier, Vietnam also saw its dong devaluation by 5.4% on November 25 of 2009 and two others in 2008. Vietnam has been suffering a high trade deficit since it was admitted to the WTO in early 2007 as it depends much on imports, mainly from its neighboring country of China. The countrys trade gap quickened to $12.853 billion in 2009, compared to $12.6 billion in 2008 and $9.1 billion in 2007, according to statistics of the Ministry of Industry and Trade. In the first seven months of 2010, Vietnam incurred a $7.44 billion trade gap, or 19.45% of export revenue nearly doubling the gap in the same period last year. The Southeast Asian country targets a trade deficit of 20% of export revenue this year. The government of Vietnam has taken a number of measures to curb the trade gap by limiting imports of non-essential goods such as cars, mobile phones and other luxury commodities, according to reports by state media recently. Still, the move will boost the countrys key exports including shoes, coffee, and rice and to rebalance its trade scales and increase its status relatively in the global trade as the dong is weakening against U.S. dollar compared to regional currencies. Analysts said the pressure for dong devaluation is also coming from the high growth rate of the local economy. Vietnams economy is estimated to have expanded 6.1% in the first half of this year and the country targets a 6.5% economic growth in 2010. Bankers are quoted by the local media said that the downward adjustment would help raise the dollar liquidity on the market and ease pressure on dollar demand-supply balance. Local economists said the move is proactive to help the central bank navigate the forex market more actively and flexibly in the coming time as dollar demand often rises by year-end. Quach Manh Hao, deputy CEO of Thang Long Securities, the countrys biggest broker, wrote in a note to clients this morning that "this move comes at a time when inflation pressure has eased and thus we think its a wise move ahead of the year end pressure when inflation usually climbs up and foreign bills are due. In other words, by doing the exchange rate exercise now, it allows the SBV time and resources to focus on the inflation exercise from now until year end." On the unofficial market one U.S. dollar soared to VND19,300 this morning ( August 18).

Vietnam Business And Financial News Network. Source [stox.vn]

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