Wednesday, July 02, 2008

ietnam sets official dong at record low

HANOI, July 2 (Reuters) - Vietnam's central bank set the daily official dong exchange rate on Wednesday at a record low of 16,519 dong per dollar , reflecting the continued pressure on the currency from rising inflation and imports.
Last Friday the central bank doubled the dollar/dong trading band to +/- 2 percent, allowing more room for banks to meet corporate dollar demand.
Vietnam has been hard hit by surging imports costs from record high oil and raw materials prices to fuel its fast-growing economy.
Inflation has been running in double digits for eight months and the trade deficit nearly tripled in the first half from a year earlier.
The official rate meant Vietnam has allowed its non-convertible dong to fall 2.45 percent against the dollar so far this year. The government had said it would allow the dong to rise or fall 2 percent for the whole of 2008.
A large part of that move was taken up by a one-off 2 percent drop in the official rate on June 11. Authorities called it an adjustment, while economists called it an effective devaluation.
Following the official rate, the dong dropped to 16,847/16,849 per dollar in interbank trading, pushing to the low end of the daily permissible range.
On black markets though, the dong changed hands at 17,600 per dollar, more than 6 percent below the official rate and about 4 percent below interbank rates.
Until this year, macro-economic stability had been taken for granted in Vietnam with growth racing along at an average of 7.5 percent since 2000.
But the trade deficit, which is putting pressure on the dong, nearly tripled in the first-half of 2008 to $14.78 billion compared with a year earlier, government figures showed.
Consumer prices in June jumped 26.8 percent from a year earlier, marking the eighth consecutive month of double-digit inflation.
The government lowered growth targets as one of its measures to cool off the overheating economy and it reported on Tuesday that annual GDP growth in the first half slowed to an estimated 6.5 percent compared with 7.91 percent in the same period last year. [ID:nHAN171181] (Reporting by Ho Binh Minh; editing by Neil Fullick)