Vietnam Devalues Dong to Protect Exports, Offset Yuan Fall

The State Bank of Vietnam guided the dong fix rate lower by 1% to 21,890 today.

The State Bank of Vietnam (SBV) devalued the dong (VND) by 1 percent against the dollar on Wednesday-its third adjustment so far this year-and simultaneously widened the trading band to 3 percent from 2 percent previously, the second increase in six days. Vietcombank, the country’s biggest lender by market value, lost 1.88 percent while property firm Vingroup declined 2.4 percent.

In a statement issued today by the SBV, the bank explained that “The dong will have enough room to fluctuate more flexibly to cope with negative impacts from global and domestic markets, not only from now until the rest of the year but also [into the] early months of 2016”. Here is a snapshot of the VN Index at midday (0431 GMT).

Vietnam hopes the moves will help keep its thriving export trade – including smartphones and other electronics manufactured by Korean giant Samsung in its Vietnamese factories – competitive with regional rivals. Additionally, in July, Vietnam saw a US$300 million trade deficit. “The bank is ready to handle market challenges”.

The weaker yuan has sparked concern of more Chinese goods flooding Vietnam’s market. While the latest devaluation will allow the dong to weaken without pressuring the central bank to intervene, further policy measures can’t be ruled out should the yuan depreciate sharply, according to Australia & New Zealand Banking Group Ltd.

The dual impact of China’s renminbi devaluation – and worries about the country’s slowdown – along with anticipation of a US rate rise is weighing on currencies in emerging markets, already feeling the pain of falling commodity prices.

However, analysts also admit that the dong has been among the most resilient Emerging Asia currencies and that a currency devaluation does make a certain level of sense give the current macro-economic climate. Written in English by Roseanne Gerin.