The dong can now trade as much as 2 percent on either side of a fixing set by the monetary authority, from 1 percent previously, the central bank said in a statement. The dong weakened 1 percent to 22,040 a dollar as of 10:28 a.m. in Hanoi. The central bank set the reference rate at 21,673, unchanged from the previous day.

The move follows two devaluations of the dong, by 1 percent each, in January and May. The action today is “to help the dong be more flexible and able to cope with negative impacts in international markets, and maintain competitiveness” of Vietnamese products, as the yuan devaluation will have a negative economic impact, the State Bank of Vietnam said in the statement.

“This is very timely policy action. The move today would help promote exports,” Alan Pham, chief economist at VinaCapital Group, Vietnam’s biggest fund manager, said by phone from Ho Chi Minh City. “Vietnamese exports have been under great pressure from the U.S. and EU markets.”

China slashed the yuan’s reference rate by a record 1.9 percent on Tuesday and a further 1.6 percent on Wednesday. The dong has declined 3 percent this year, compared with drops of 13 percent in Malaysia’s ringgit and 10 percent in Indonesia’s rupiah.

Trade Deficit

Vietnam is trying to prop up an economy that it projects will grow 6.2 percent this year. The country posted a trade deficit of $300 million in July as exports growth slowed to 9.5 percent in the first seven months of 2015, compared with 14.1 percent in the same period a year earlier.

Vietnam’s central bank lowered the dong deposit rate cap and cut other rates last year in a bid to spur lending and help businesses.

China has been Vietnam’s biggest trade partner since at least 2007. Imports from China reached $28.8 billion in the first seven months of 2015, up 22.5 percent from a year ago, data from the Hanoi-based General Statistics Office showed. Exports to China climbed 8.3 percent to $9.3 billion.

“The State Bank of Vietnam will take comprehensive measures and policies to ensure stability of the dong and the currency market,” the monetary authority said. It will “closely watch developments in local and international markets, taking into account macro-economic forecasts to take suitable policy actions,” it said.

By Nguyen Dieu Tu Uyen - Bloomberg - August 12, 2015