Vietnam dong devaluation seen as too little
HANOI - Vietnam on Friday
effectively devalued the dong currencys official exchange
rate by 9.1 percent, a move bankers said was a step in
the right direction but probably not enough to boost
sagging export competitiveness.
Despite the central banks action, bankers said the dong
was still above a realistic value and pressure on it would
remain, given recent sharp falls in the currencies of Asian
trade competitors.
The central bank set the interbank pivot rate for the
dong on Friday at 12,998 to the dollar from 11,815 the
previous day.
However, on Friday a decision narrowing the dongs
trading band to seven percent from 10 percent on either
side of the pivot rate also took effect.
That would mean Vietnam could claim a larger
devaluation than might occur in the market because the
dong had previously hovered at the bottom of that 10
percent band, or near 13,000.
With the seven percent range, the dong could now trade
at the bottom of that band at 13,907.86, a level bankers
said the currency had already headed for.
At about 0500 GMT, the dong was quoted at
13,700/13,900.
Vietnam has incrementally devalued its currency since
last October. The last adjustment -- 5.3 percent -- came
in February.
Neither the government nor the central bank immediately
commented on the devaluation.
A central bank official said trade on the interbank
market had remained slow early on Friday.
``Not all commercial banks have started trading...overall
everyone is in the process of assessing the market,'' she
said.
Foreign bankers in Vietnam said the devaluation was
unlikely to significantly boost the communist countrys
declining export competitiveness and would not inject a
great deal of liquidity into a stagnant interbank market.
``I think we might see a small increase in (interbank)
volumes, but Im not expecting a rush,'' one banker said.
But while saying the non-convertible currency was still
overvalued, bankers said they especially welcomed the
central State Bank of Vietnams decision announced late
on Thursday to remove margin limits on spot currency
transactions.
The decision gave the heads of financial institutions the
right to fix the margin they charge customers on spot
deals.
``The most practical step that the State Bank has done is
to allow banks to decide their spread between buying
and selling rates,'' said David Pollitt, treasury manager at
Hongkong Bank in southern Ho Chi Minh City.
Previously banks could only charge 0.1 percent
commission on spot deals involving foreign currency
transfers through the financial system. The rate had been
0.5 percent on actual cash transactions.
Stewart Hall, head of treasury at Standard Chartered
Bank in Vietnam, earlier said the dong adjustment and
the decision to remove the margin limits was positive
news for the market, and he hoped for fresh liquidity in
interbank trading.
Another foreign banker said that within a day of
Februarys devaluation, interbank trading rates had fallen
to the bottom of the then 10 percent trading band.
``It took a day last time and the currency seems to be
acting the same as the last devaluation with the rate
moving to the floor,'' he said.
Foreign economists have urged Vietnam to devalue the
dong to boost export competitiveness and bring it more
into line with regional currencies, which have tumbled in
the past year.
Government leaders had said in recent months the dong
would not be devalued, although export growth has
slumped this year.
Estimated export growth in the first six months of 1998
was 7.3 percent year-on-year.
The government has also adjusted its total export growth
target for the full year to 10 percent. Exports grew 22
percent in calendar 1997.
Rice and coffee traders welcomed the devaluation, but
said any positive impact on Vietnams commodity
exports depended on the countrys farmers and whether
they raised local prices in response to the devaluation.
Vietnam is one of the worlds top rice and coffee
exporters and both commodities are key foreign
exchange earners.
Chiang Yao Chye, head of Asia-Pacific Research at
CIBC in Singapore, said the dong adjustment would
have little impact on regional markets as most eyes were
on a possible devaluation of the Chinese yuan.
``The key focus will continue to be on economies like
China given their size,'' he told Reuters by telephone. ``I
dont expect to find much impact.''
By Andy Soloman - REUTERS - August 07, 1998.
|