Vietnam devalues dong for second time in 2015 to aid exports

[HANOI] The State Bank of Vietnam devalued the dong for the second time this year in a bid to maintain export competitiveness and accelerate economic growth.

The central bank weakened its reference rate 1 per cent to 21,673 dong a dollar, effective Thursday, it said in a statement. The Vietnamese currency is allowed to trade as much as 1 per cent either side of the fixing. The dong fell 0.3 per cent, the most since March 16, to 21,718 as of 12:42 pm in Hanoi, according to data compiled by Bloomberg.

"It's very important for Vietnam to manage its export competitiveness," said Dariusz Kowalczyk, a Hong Kong-based senior economist at Credit Agricole CIB. "The impact will not be strong because it's only one percent but it will provide help to exporters at the margin and will support the country's external position as well as economic growth."

Vietnam recorded its slowest expansion in overseas sales in the the first four months of the year since 2010. The dong has declined 1.5 per cent in 2015, putting the country's exporters at a relative disadvantage to those in nations like Indonesia and Malaysia, whose currencies have fallen 5.3 per cent and 2.6 per cent, respectively.

The exchange rate was adjusted "to proactively implement social-economic development targets," the central bank said in the statement. The currency was last devalued, also by 1 per cent, on Jan 7. Central bank Governor Nguyen Van Binh said in December that the regulator wouldn't weaken the dong more than 2 per cent in 2015.

The decision happened "slightly earlier," than expected, Paul Mackel, head of global emerging markets foreign-exchange research at HSBC Holdings Plc in Hong Kong, wrote in a research note Thursday. "We don't expect further policy moves from the State Bank of Vietnam this year."

Vietnam's government is targeting a 10 per cent increase in exports this year to help achieve economic growth of 6.2 per cent, compared with expansion of 5.98 per cent in 2014. Overseas sales rose 8.2 pe rcent in the four months through April and the country recorded a trade shortfall of US$3 billion over the period, government data show. Shipments from manufacturers such as Samsung Electronics Co. boosted Vietnam's exports by 13.6 percent last year.

"The devaluation is not a bad thing because there is some deterioration in the trade balance," said Irene Cheung, a senior foreign-exchange strategist at Australia & New Zealand Banking Group Ltd. in Singapore.

Vietnam's inflation has remained below 1 per cent in the first four months of 2015, slowing from 5.45 per cent at the beginning of last year, official data show.

The dong closed at 21,670 a dollar on Tuesday, near the 21,673 level that was the weakest it could trade at prior to the devaluation. It closed within 0.4 per cent of that level on every day over the last two weeks.

"It's a really good time to devalue the currency because the pressure on the dong has been holding up for weeks, or even months," said Alan Pham, the Ho Chi Minh City-based chief economist at VinaCapital Group, Vietnam's biggest fund manager.

BLOOMBERG