UPDATE 1-Vietnam says no plans for currency devaluation
Fri Jun 6, 2008 3:26pm IST
HANOI, June 6 (Reuters) - Vietnam's government has no plans to devalue the dong in spite of the forwards markets pricing in a sharp depreciation in the value of the currency one year from now, the country's second-largest bank BIDV said on Friday.
The government also has sufficient foreign currency reserves to meet investors' demands to convert their funds into dollars, Prime Minister Nguyen Tan Dung was quoted as saying in the bank's statement.
Vietnam will strive to reduce its inflation to single digits by 2010, Dung told BIDV Chairman Tran Bac Ha and JPMorgan's Head of Economic and Sovereign Research, David Fernandez, at a meeting on Thursday, BIDV said.
Vietnam's economy and the dong are under pressure from inflation running at more than 25 percent and rising imports.
The country's overall balance of payments for the first five months of the year was a surplus $1 billion, Dung said.
"Given the current forex surplus, the prime minister believed that the dollar/dong trading band should be adjusted in a flexible manner in both directions," the statement quoted Dung as saying of the current daily band of +/-1 percent.
In the short term, the band could be changed to come close to the +/- 2 percent as projected by the government, he said.
Analysts said the remarks would help calm market jitters over recent volatility.
"I think the market has seen some dramatic moves (in Vietnam) recently, and the comments are aimed at trying to calm down the market's nerves over how policy makers are dealing with the inflation problem," said David Mann, currency strategist at Standard Chartered Bank in Hong Kong.
"We are expecting more of a smooth weakening of the dong than the NDF market suggests -- some market expectations do appear to be overdone."
VOLATILITY
Earlier on Friday, BIDV called on the central bank to take more action to stabilise the dong as it fell to fresh lows under pressure from rising import prices [ID:nHAN269583].
In offshore non-deliverable forwards PNDG, the dong firmed to 22,800/23,800 per dollar on one-year term by 0848 GMT, implying the currency will be worth around 30 percent less in a year's time.
The dong's <VND=> spot rate was at 16,283/16,285 per dollar.
Dung said offshore markets which priced in a fall of between 20 and 40 percent in forwards deals had no grounds doing so.
He said the State Bank of Vietnam would step up its measures to intervene in the markets.
"The government will soon publish its foreign exchange reserves in dollars," the BIDV statement said, adding that Dung has asked the State Bank of Vietnam to publish the reserves on a regular basis to win the public's trust.
Dung assured the two bankers at the meeting that Vietnam would not conduct any policy to control foreign portfolio investments, which would contravene the country's commitments toward integration and the market economy it pursues.
Mann of Standard Chartered said rising oil prices have had a major impact on the economy and inflation was likely to climb.
"We are still expecting inflation, which is quite high right now, to go even higher in the third quarter," Mann said. "But we think it will start coming off by the fourth quarter and the first quarter of next year."
(Reporting by Ho Binh Minh and Kevin Yao, editing by Jacqueline Wong)
