Vietnam devalues dong to boost growth

[HANOI] Vietnam's central bank said Wednesday it would devalue the dong currency for the second time in seven months in a bid to boost exports and drive economy forward.

The State Bank of Vietnam (SBV) will devalue the reference rate by one per cent to 21,458 Vietnamese dong per dollar to "control inflation" and "push up economic growth", it said in a statement.

The latest move is "in accordance with the developments of the domestic and international financial markets, creating a solid stability for the forex market", the SBV said.

The dong was last devalued by one per cent in June 2014.

SBV governor Nguyen Van Binh said in December that the regulator will not weaken the dong by more than two per cent in 2015.

At the new reference rate, the currency is allowed to fluctuate from 21,243 dong against the dollar to 21,673 dong.

Economist Vu Dinh Anh from the state-run Economic Finance Institute told AFP the dong had come under mounting pressure on foreign exchange markets late last year.

"The SBV had to proceed with the adjustment to avoid disadvantages against other currencies," he said.

Asian currencies have more generally weakened against the dollar over the past six months due to assumptions that the US Federal Reserve will start raising interest rates this year.

"The move was in line with market expectations of weaker currency against general strength of the greenback," ANZ said in a statement on the dong devaluation Wednesday.

The bank added that it expects further devaluations in 2015 and forecast the Vietnamese currency would reach 22,050 by December.

The dong devaluation will help keep Vietnam's thriving exports - including smartphones and other electronics manufactured by Korean giant Samsung in its Vietnamese factories - competitive with regional rivals.

Rising exports helped Vietnam to achieve its highest GDP growth in three years in 2014 with the economy growing an estimated 5.98 per cent, while inflation slowed to 4.09 per cent, official figures showed.

But the exports boom has yet to spill over into the domestic economy, which remains sluggish thanks in part to lingering problems in the banking sector and the dominance of inefficient state owned enterprises.

Vietnam's central bank cut policy interest rates last year to spur lending and help businesses.

The government is targeting economic growth of 6.2 per cent this year.

AFP