6/27/2008 1:52 AM ET The Vietnam dong fell to a new multi-year low of 1.6843 against the US dollar during early deals on Friday. The dollar-dong pair closed Thursday's deals at 1.6615.
Yesterday, the Vietnam central bank announced that it is widening the Dong's trading band to 2% from 1%, with effect from Friday. The pair is allowed to rise or fall 2% against the dollar.
The move was largely done to tame the country's inflation that has struck almost 27% in June. But the Dong's deprecation will add more fuel to the fire as the weaker currency increase the cost of imports.
Vietnam Prime Minister Nguyen Tan Dung pledged that the inflation will be brought to one digit figure in 2009 and in early 2010. Consumer prices in June rose 26.8% on a year-on-year basis from 25.2% in May.
On June 11, the central government has weakened the Dong's trading band by 2% and raised the base interest rate to 14 percent from 12 percent to fight double-digit inflation.
The Vietnam currency that surged to new multi-year high of 1.5820 against the dollar on March 24 started weakening thereafter. Since then, the Vietnamese dong has depreciated around 6% against the dollar. Accelerating inflation, a widening trade deficit and a near 60 percent slide in local stocks this year have seen the currency decline for three straight months.
by RTT Staff Writer
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