Vietnam Dong now not a problem

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The dong does not appear to be a problem at its current levels, although "now is the time" for policy action to bolster confidence in economic stability, a senior IMF official said on Monday. The dong has been devalued four times since the middle of 2008 as the central bank moved to relieve pressure on the currency. The latest devaluation was in February.

"It seems very clear that at its current level the currency doesnt appear to be a significant problem from a medium-term equilibrium basis," said John Lipsky, the International Monetary Funds First deputy Managing director.

He was speaking on the sidelines of an IMF conference on post-crisis growth and poverty reduction in developing Asia jointly organised with the State Bank of Vietnam.

"Now is the time to continue adjusting policy to bolster confidence in macroeconomic stability, namely that both budgetary policy is set appropriately, that monetary policy acts to dampen inflation pressures, inflation risks," Lipsky told Reuters in an interview.

His comments followed an assessment last week by the Asian Development Bank, when country representative Ayumi Konishi said Vietnams foreign exchange market has stabilised after recent devaluations, and there was no cause for concern.

The latest dong devaluation was in February. The central bank devalued the currency by 3.35 percent after the gap between the black market rate and the official exchange rate widened in part because of a dollar shortage in the economy.

On Monday, the unofficial dollar-dong exchange rate was stable and similar to last Friday, trading about 1 percent below the bottom end of the official trading band for the day.

Immediately before the February devaluation, it was 4 percent below the weak end of the band.

Last year, Vietnam tapped its foreign exchange reserves to help ease a dollar shortage, and some economists have expressed concern that dwindling reserves could eventually cause problems.

Fitch Ratings has forecast that Vietnams forex reserves would drop to 2.6 months of imports and 1.6 months of current external payments this year, the weakest since 1994, and the lowest among countries with a BB-minus credit rating.

The agency placed Vietnams long-term foreign and local currency ratings on watch negative as confidence in the countrys currency weakens and on a lack of transparency for key economic data.

Lipsky said the opportunity exists "to continue, or renew, solid growth in the economy and set the foundations for an extended period of strong expansion".

Vietnams economy is expected to grow in the first quarter by around 6 percent compared with a year earlier, State Bank of Vietnam Governor Nguyen Van Giau said in his opening remarks at Mondays conference.

Finance minister Vu Van Ninh told parliament on Friday that inflation would be kept in check. He said the March consumer price index was forecast to rise 0.5-0.6 percent from February.

The annual rate of inflation in February hit 8.46 percent, a 10-month high.

Vietnam Business And Financial News Network. Source [intellasia.net]

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