Vietnam's State Bank devalued the dong effective Thursday by 3.4 per cent against the US dollar. The devaluation put the official reference exchange rate at 18,544 to the dollar.

Banks can trade currency within a range of 3 per cent on either side of the reference rate.

Finance industry analysts hoped the move would increase dollar liquidity in Vietnam's economy. Export businesses have recently complained of difficulty obtaining dollars for transactions.

"We see it as a very positive step," said Peter Ryder, chief executive of Indochina Capital. "The government is recognizing the problem before things get out of control."

Senior economist Le Dang Doanh, former head of the Central Institute of Economic Management, said the move to devalue the dong just in advance of the Lunar New Year holiday, or Tet, was unexpected.

Doanh said the move might have been related to overseas Vietnamese sending dollar-denominated remittances home for the Tet holiday. He said the government aimed to ensure those dollars circulate quickly in the economy.

To the same end, the State Bank Thursday capped interest on dollar-denominated bank accounts at 1 per cent.

"The State Bank wants to send a message that keeping dollars is no longer profitable," Doanh said.

Deutsche Presse Agentur - February 15, 2010