Vietnam dong could weaken by up to 6 pct this year
Vietnam's currency, the dong , could lose 5-6 percent of its value against the dollar this year, a government advisory agency predicted on Monday.
The dong has suffered since 2008, pummelled by volatile inflation, a persistent trade deficit and low foreign exchange reserves. Annual depreciation of up to 6 percent could be seen as a "positive result", the National Financial Supervisory Commission said in a report.
During 2011, the central bank lowered the dong's midpoint rate by 9.1 percent, including an 8.5 percent one-off devaluation in February. Currently, the currency is allowed to trade around that rate in a band of 1 percent on either side.
The exchange rate quoted between banks shed some 7.3 percent while the unofficial, or black market, exchange rate ended the year at 21,190 dong per dollar, just 0.7 percent weaker than its level at the start of the year, based on data compiled by Reuters.
The State Bank of Vietnam has regulated the dong through a "crawling peg" system whereby the value of the currency is allowed a certain amount of depreciation each year relative to the U.S. dollar.
Other "positive results" the country is likely to achieve this year, according to the National Financial Supervisory Commission, include keeping inflation below 10 percent and containing the trade deficit to less than 10 percent of 2012's export total, the report said.
At the end of 2011, inflation was running at 18.6 percent. It peaked in August, when annual inflation hit 23 percent.
Le Xuan Nghia, deputy chairman of the commission, predicted that inflation and currency depreciation would not be Vietnam's biggest macroeconomic concerns this year.
Rather, a liquidity squeeze in the troubled banking system could threaten the economy, he said at a conference on Monday.
Several banks have been offering annual interest of 19-21 percent for dong deposits despite the central bank's cap of 14 percent, highlighting the funding squeeze, he said.
By Ngo Thi Ngoc Chau & John Ruwitch - Reuters - January 9, 2012