Vietnam doubles currency trading band to counter yuan fall

Vietnam doubled its trading band for interbank dollar/dong transactions on Wednesday, aiming to protect its exports by countering the adverse affects of a strengthening dollar and yuan devaluation, the central bank said.
The new band was introduced a day after China, Vietnam's top trading partner, devalued its currency by nearly 2 percent. Dollar/dong transactions can now move in a band of plus or minus 2 percent around a mid-point, which the central bank sets daily.
The mid-point has been held at 21,673 dong per dollar since May 7, when the State Bank of Vietnam (SBV) devalued the dong by 1 percent for the second time this year, aiming to spur exports and curb demand for imports that has left it with a hefty trade deficit.
The May move met the government's promise to let the dong fall 2 percent this year.
"Widening the dollar/dong trading band helps the government adjust exchange rates according to the global economic situation," said Retail Research Manager Nguyen The Minh in Viet Capital Securities.
The wider band came as global crude oil prices hit new lows, while the dollar has strengthened and the Chinese yuan was devalued strongly on Tuesday, the SBV said in a statement.
The new band would "create initiative and flexibility for the exchange rate" given adverse moves in the international market, and would help ensure the competitiveness of Vietnamese goods, it said.
"China is a partner with a large proportion in Vietnam's trade, the yuan adjustment leaves a negative impact on Vietnam's economy," the statement said.
Vietnam's January-July exports rose 9.5 percent from a year ago to $92.27 billion, below a 10 percent growth target set for 2015 and below growth of 14.1 percent in the same period a year ago. Under the new band, the dong can move between 21,240 dong and 22,106 dong per dollar on the interbank market, the SBV said.
"The adjustment is understandable and should be seen as a positive sign as it will lure more foreign investment to the stock market thanks to a cheap Vietnamese dong," said Minh from Viet Capital Securities.
The dong fell to 22,040/22,080 per dollar, a record low, at 0330 GMT on the interbank market, down from 21,830/21,845 dong per dollar on Tuesday. It has now fallen around 3 percent so far this year.