Further cbank moves expected post-devaluation

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VietStock FI English - 82 month(s) ago 8 readings

The Vietnamese dong has continued to decline in unofficial trade after the February 11 devaluation, a sign that the central bank should be doing more to calm the foreign exchange market, bankers said on Monday.

The dong fell to 22,200/22,300 a dollar at a major gold shop in Hanoi at 0235 GMT on Monday from 21,600/21,700 a week ago, but strengthened to 22,000/22,100 by 0645 GMT.

Psychological factors were at work in the wake of the 8.5 percent devaluation, the country's biggest since the 1997-8 Asian financial crisis, a treasury manager at a Hanoi-based bank said.

"After some surprise about the large adjustment, businesses and banks started to expect the dong to continue to fall because there were no further actions from the state after that," he said.

The dong hit a record low of 22,200/22,500 a dollar on Saturday in Ho Chi Minh City, an online report of the state-run newspaper Vietnam Economic Times said.

Confidence in the dong is chronically low, and for the past three years devaluations have validated expectations of further depreciation. Vietnamese people widely turn to gold and dollars to hedge against inflation or to buy big ticket items.

Dollars were increasingly hard to find and banks were pushing the US currency beyond the limits of the 1 percent band set for the interbank market, traders said.

With the dong mid-point rate set at 20,673 a dollar by the State Bank of Vietnam, the rate was fixed close to the dollar's top limit of 20,879 dong.

Bankers have been expecting action from the central bank to bring the official rate back into line, said one trader at a Ho Chi Minh City-based lender.

Economists have also been urging the central bank to take further steps to stabilize the market.

Last week the central bank raised the refinance rate by 2 percentage points to 11 percent, a move seen by bankers as a way to discourage banks from hoarding dollars and sell them to cover their dong needs.

In addition, the central bank should also allow options trading and transactions in third currencies, such as euro or yen, to ease the pressure on the dong and bring dollar supply and demand closer, Tuoi Tre newspaper quoted Tran Ngoc Tho, a professor at the University of Economics in Ho Chi Minh City, as saying.

State media have said the government would announce this week a set of new measures to stabilize the economy and curb inflation.

"The market has not received the government's strong message about containing inflationary pressures. When such measures are implemented, they will surely have positive effects," the newspaper Saigon Giai Phong quoted central bank governor Nguyen Van Giau on Monday as saying.

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