Vietnam devalues currency as inflation bites; Vietnam must tackle inflation: IMF says

Vietnam Devalues Currency as Inflation Bites

Feb 11, 2011. Vietnam has devalued its currency for the third time in a year. The dong fell 9.3 percent Friday, bringing the official exchange rate to 20,693 from 18,932 per U.S. dollar.

The central bank says the devaluation is aimed at increasing liquidity in the foreign exchange market and curbing the trade deficit. The dong was last devalued in August.

Benedict Bingham, Vietnam country representative of the International Monetary Fund, says the devaluation is a welcome move as it narrows the gap between the official exchange rate and the market rate.

But he says it has to be supported by other measures that address Vietnam’s bigger economic challenges.

“On the monetary policy side, there needs to be a much more decisive focus on containing inflation and then on fiscal policy, there needs to be a much clearer consolidation path for the budget deficit to give the markets – and I’m talking about domestic and overseas – confidence that public debt can be contained,” Bingham said.

Vietnam Must Tackle Inflation After Dong’s Devaluation, IMF, Citigroup Say

Feb 12, 2011. Vietnam’s devaluation of the dong yesterday by about 7 percent, the most since at least 1993, needs to be followed with steps to curb inflation, the International Monetary Fund and Citigroup Inc. said.

The dong slumped to as weak as 20,893 per dollar, compared with 19,490 on Feb. 10, and closed at 20,875 in Hanoi yesterday. The State Bank of Vietnam fixed the reference rate for the currency at 20,693 versus 18,932 the previous day, or 8.5 percent weaker. The trading band for the currency was narrowed to 1 percent on either side of the rate from 3 percent previously.

Vietnam’s fourth devaluation in 15 months to curb the trade deficit and narrow the gap between official and black-market exchange rates runs the risk of spurring inflation from almost a two-year high. The IMF yesterday called for steps to check price gains, while Citigroup said the central bank should have increased interest rates at the same time.

Inflation fears as Vietnam devalues dong

Feb 11, 2011. Vietnam slashed the value of its currency by 9 per cent on Friday in an attempt to shore up waning confidence in the country’s fast-growing but troubled economy.

Taking a lead from China, Vietnam’s Communist rulers have opened up the previously centrally managed economy and achieved impressive average economic growth of 7 per cent a year over the past decade. But this has come at a high cost.

The country has suffered from stubbornly high inflation as well as large trade and budget deficits. With Vietnam’s currency, the dong, persistently weak, many people have abandoned it as a store of value in favour of dollars and gold.

The latest devaluation, the fourth in 15 months, brings the government-mandated dong-dollar exchange rate much closer in line with the free-floating, black-market rate, which drifted lower last year as all three main debt rating agencies downgraded Vietnam.

But the scale of the devaluation has raised concerns that inflation may be driven even higher and companies may struggle to pay back dollar loans.

Most other Asian currencies have appreciated against the dollar since the global financial crisis, as western investors have sought better returns. The weakness in the dong and the corresponding desire to accumulate dollars, gold and property are symptomatic of the unique challenges facing this nation of nearly 90m people.