The State Bank of Vietnam has no plans to adjust the dong exchange rate against the US dollar, even though the dong's value has been dropping on the unofficial market, a local newspaper reported on Tuesday.
"At present the State Bank does not have any plans for exchange rate adjustment," Governor Nguyen Van Giau was quoted by the Saigon Giai Phong daily as saying, rejecting market rumors of a dong devaluation.
The central bank has devalued the dong three times since November and speculation of another devaluation has been putting pressure on the currency, making businesses reluctant to sell dollars.
Dollar demand has also been rising as businesses need the currency for loan repayments and importers need dollars for settlements.
However, the dong edged up to 19,870/19,920 per dollar on the unofficial market on Tuesday morning from 19,920/19,970 on Monday, while it was steady at VND19,490/19,500 on the interbank market, with the selling rate at the permitted ceiling.
Victoria Kwakwa, the World Bank's representative in Vietnam, told reporters on Tuesday that "we think that broadly the government has been moving in the right direction" on monetary and fiscal policy.
However, she said more could be done by the authorities to communicate their policy stance and give more information on indicators, so as to build up confidence in overall macroeconomic management.
This would help "address some of the left-over expectations of inflation and continued instability that are underpinning some of the challenges".
The Bank's lead economist for Vietnam, Deepak Mishra, said he expected pressure on the dong to ease over time, but how the market reacted would depend on the government putting forward a "credible road map" for dealing with the problem.
The International Monetary Fund warned in September that Vietnam needed to concentrate on maintaining the level of the dong, and said that repeated comments from the government about the need to lower lending rates was counter-productive.
"A lack of coordination between monetary and fiscal policies, or the appearance thereof, would amplify market skepticism," it said.
Vietnam probably won’t devalue the dong again until next year, Australia & New Zealand Banking Group Ltd. predicted, after three moves by the nation’s central bank to reduce the value of the currency in the past year.
Vietnamese banks have enough dollars to keep the dong from succumbing to immediate pressure from higher-than-expected inflation and a persistent trade deficit reflected in this month’s data, traders said.
Vietnam must work to address expectations its currency will depreciate further, according to the International Monetary Fund’s representative in the country.
Following the government’s tightening of prices for essential industrial and consumer products, inflation is expected to remain stable in the coming months, an expert at Standard Chartered say.
Relatively low incremental increases in prices over the last few months have lulled consumers and others into a sense of false security, experts say, warning that inflation continues to be a serious threat in the coming months.
The devaluation of the dong this week will help improve Vietnam’s trade balance, but it may fuel inflation concerns, experts say.
Vietnam’s dong had its worst week since February, dropping to a record low, after the central bank devalued the currency for a second time this year to help reduce the trade deficit.
Vietnam set a lower reference rate for the dong for the third time since November, which may allow the currency to weaken and help reduce the trade deficit.