HANOI—Vietnam’s central bank Wednesday devalued the dong against the U.S. dollar by 1%, a move that may help make the Southeast Asian country’s exports more competitive with regional peers as the dollar strengthens.
The central bank set the dollar rate at 21,458 Vietnamese dong Wednesday versus 21,246 dong Tuesday. Exchange rates for commercial banks are allowed to move within a 1% band around the central bank rate.
The central bank said in a statement Tuesday night the rate adjustment was in line with the government’s development plan for 2015. The government targets gross-domestic-product growth of 6.2% and is aiming to keep inflation at 5% for this year. The country recorded GDP growth of 5.98% and inflation of 1.84% last year.
“The central bank has the responsibility to take an active and flexible monetary policy, which, along with fiscal policy, will aim to keep inflation at a targeted level and maintain macroeconomic stability while supporting an appropriate growth,” the State Bank of Vietnam said in the statement.
Wednesday’s devaluation is the first since June last year, when the central bank devalued the dong by 1%. ANZ said it expects more devaluation toward the end of the year and that its foreign exchange strategists forecast the exchange rate may reach 22,050 dong by December.
Can Van Luc, an economist with the Commercial Bank for Investment & Development of Vietnam, said the move “will ultimately help Vietnam boost its exports this year.”
A strong increase in exports, largely by companies with foreign investment, helped drive Vietnam’s growth last year. Government data showed exports grew 13.6% to $150 billion in 2014.
Vo Tri Thanh, an economist with the government’s Central Institute for Economic Management, said exporters of farm produce will benefit most from the devaluation given that the sector imports only a small amount of materials. The devaluation is unlikely to significantly increase exports of manufactured goods, however, as that sector requires more imported raw materials, the cost of which will rise, he added.
Mr. Thanh, however, warned that the devaluation on Wednesday may reveal that the pressure on the exchange rate is mounting.
“The strengthening U.S. dollar and an anticipated trade deficit in 2015 could put more pressure on the dong later this year,” Mr. Thanh said, noting that the government is anticipating a trade deficit of $5 billion to $6 billion this year, compared with a surplus of nearly $2 billion last year.
State Bank of Vietnam Deputy Governor Nguyen Thi Hong said last week the central bank will aim to keep the exchange rate stable in 2015, allowing it to move within a 2% band.
original source: http://www.wsj.com/articles/vietnam-devalues-dong-as-u-s-dollar-rises-1420618652