HA NOI - The State Bank of Viet Nam has weakened the dong by 1 per cent, reducing the US dollar daily reference rate from 21,458 to 21,673 dong effective from yesterday, its second devaluation this year.
The ceiling rate was VND21,890 (S$1.30) per dollar, an effective exchange rate with a one per cent margin.
Right after the SBV's announcement on the devaluation of dong, the dollar rates in most local commercial banks soared by VND70 per dollar to touch VND21,740 per dollar, including the Joint Stock Commercial Bank for Foreign Trade of Viet Nam (Vietcombank) and the Viet Nam Technological and Commercial Joint Stock Bank (Techcombank).
The selling and buying rates in the flea market reached VND21,750 and VND21,700 per dollar.
The SBV said in its announcement that the adjustment was aimed at helping to fulfill the socio-economic development targets set by the Party, National Assembly and the government in 2015, and to deal with the negative impacts of the international market.
The SBV said the exchange rate in the local market tended to increase in the past, but still remained within its permitted margins.
The SBV will continue to implement measures and tools to stabilise the exchange rate and the monetary market, as well as keep a close watch on the development of both the local and global markets.
In a previous adjustment made on January 7, the SBV had increased the inter-bank exchange rate from VND21,256 to VND21,458 per dollar. The ceiling rate was VND21,673.
Early this year, the SBV had said the dollar-dong inter-bank exchange rate would be increased by no more than 2 per cent in 2015.
HSBC said in a press release that the move had happened slightly earlier than expected, but with the rate hovering on the topside of the band for the past few weeks, especially the last few days, the decision was not a complete surprise.
The rate in the last few weeks highlighted the fact that dollar demand has remained relatively strong.
"However, we believe there has not been a significant fundamental deterioration that pushed the SBV to depreciate the VND today," the release said.
"Rather, the SBV probably seized the opportunity provided by the broad USD correction and low domestic inflation to make the small adjustment.
"In our view, this shift in the reference rate should be seen as a proactive measure to help narrow the trade deficit (US$3.3 billion (S$4.4 billion) in the year-to-date, not seen since 2011) and to arrest the slight deterioration in Viet Nam's balance of payments position.
ANZ Bank also saw pressure on the dong emanating from the deterioration in the trade balance though FDI inflows have remained robust.
It said however the dong could reach 22,050 by year-end, taking the annual spot depreciation to 3.1 per cent compared to 1.4 per cent last year.