Viet­nam de­val­ues cur­rency by 1%

The China Post - - BUSINESS INDEX & -

Viet­nam al­lowed its cur­rency to weaken by at least 1 per­cent Wed­nes­day fol­low­ing the de­val­u­a­tion of the Chi­nese yuan and the ex­pec­ta­tion of a pos­si­ble U.S in­ter­est rate hike.

The cen­tral bank-set ref­er­ence rate weak­ened to 21,890 dong to the U.S. dol­lar and the trad­ing band within which the dong can be traded was widened to 3 per­cent from 2 per­cent, the State Bank of Viet­nam said.

“Fol­low­ing the strong de­val­u­a­tion of the Chi­nese yuan, do­mes­tic mar­ket sen­ti­ment is very much con­cerned with the neg­a­tive im­pact of a United States Fed­eral Re­serve in­ter­est rate in­crease,” the cen­tral bank said in a state­ment.

It said the bank was widen­ing the trad­ing band — ef­fec­tively al­low­ing the dong to weaken more — “in or­der to proac­tively lead the mar­ket and pre-empt neg­a­tive im­pacts from the pos­si­ble Fed rate in­crease.”

Economist Tran Du Lich said the cen­tral bank’s de­ci­sion to widen the band to 3 per­cent was nec­es­sary in the cur­rent sit­u­a­tion. He said a pos­si­ble Fed rate in­crease later this year would weaken the ap­peal of the dong even more.

“Some 85 per­cent of Viet­nam’s trans­ac­tions are in U.S. dol­lars,” he said by tele­phone from Ho Chi Minh City. “Any move by the Fed there­fore will al­ways have some im­pact on Viet­nam’s cur­rency ex­change pol­icy.”

The VN In­dex, the coun­try’s main stock ex­change in­dex, fell nearly 2 per­cent by late morn­ing Wed­nes­day be­fore bounc­ing back to close at 577.8 points, or 0.41 per­cent lower.

Last week, main­land China sharply de­val­ued the yuan, which the gov­ern­ment said was part of re­forms meant to make its ex­change rate more mar­ket-ori­ented. But the de­ci­sion ac­cen­tu­ated wor­ries over the health of the world’s sec­ond-largest econ­omy fol­low­ing a slump in ex­ports.

Two-way trade be­tween Viet­nam and main­land China was US$59 bil­lion last year, in which Viet­nam recorded a deficit of US$29 bil­lion.

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