A local economist said the 1% devaluation of the dong would help exports in a context where the Chinese yuan has fallen.
The devaluation of the dong would help exports
The State Bank of Vietnam lowered the official mid-point rate to VND21,890/ USD from VND21,673/USD and widened the trading band from 2 to 3%.
This is the second time Vietnam's exchange rate has been adjusted in nearly a month following the yuan devaluation.
In an interview with DTiNews, Dr. Nguyen Tri Hieu, who set up the first Vietnamese bank in the US, said that the weaker yuan had led several regional countries such as South Korea, Indonesia, Malaysia and Philippines to devalue, so Vietnam had to follow suite in order to avoid making Vietnamese exports less competitive.
The weaker yuan has raised concern of more Chinese goods flooding the Vietnamese market, putting further pressure on the balance of trade.
Following the strong devaluation of the Chinese yuan, domestic market sentiment has been very much concerned with the negative impact of the United States Federal Reserve's interest rate increase, Hieu added.
Without the dong devaluation following the weaker yuan, Vietnam will see an increase in USD dollars being bought, forcing local banks to sell more dollars, despite their dollar reserves being limited.
Dr. Hieu said that the State Bank of Vietnam needs to be more flexible in exchange rate adjustment in the coming time, particular given Vietnam’s increasing global integration.
Weakening the dong will mean higher public debts and inflation. However, it should help to boost foreign investment. Meanwhile, overseas remittances are expected to offset the currency devaluation for Vietnam.
Vietnam incurred a trade deficit of USD300 million in July as export growth slowed to 9.5% in the first seven months of this year, down on the 14.1% recorded a year earlier.
