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Black Market Signals Vietnam Dong Devaluation Is Just Beginning
By Beth Thomas
Nov. 26 (Bloomberg) — Vietnam, struggling to control accelerating inflation and a widening trade deficit, will keep weakening the dong after devaluing the currency for the first time since December, black-market rates and forwards show.
The central bank said yesterday it will permit the currency to decline a further 3 percent today, after it fell 5.4 percent in the past year. The unofficial rate offered at gold shops in Ho Chi Minh City is 9.7 percent weaker than yesterday’s spot- market price of 17,886 per dollar. Contracts based on the exchange rate in 12 months imply a 15.6 percent depreciation.
Inflation accelerated to a six-month high of 4.35 percent in November from a year earlier and the nation’s balance of payments worsened as exports dropped and rising commodity prices swelled the cost of imports. The dong has slumped 22 percent in the past decade and the government risks “damaged credibility” by allowing further losses, according to Standard Chartered Plc.
“Whenever you devalue a currency, there is general expectation for more,” said Thomas Harr, a foreign-exchange strategist in Singapore at Standard Chartered, which predicts a decline to 19,000 by the end of next year. “The key challenge is the widening trade deficit and slowing inflows from foreign direct investment, remittances and equity inflows.”
The State Bank of Vietnam decided to lower the reference rate 5 percent to 17,961 against the dollar, close to yesterday’s spot rate. That was the first such move since Dec. 25. The dong’s decline will be limited as policy makers also narrowed its trading range to 3 percent from the daily rate, from a 5 percent band adopted March 23.