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May 23, 2017

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Vietnam lowers dong, second time in 3 months

HANOI -- Vietnam's central bank effectively devalued the dong for the second time in three months yesterday amid widespread concerns over a high trade deficit and inflation.

The average interbank rate yesterday was 18,544 dong per U.S. dollar, against 17,941 the previous day, a fall of 3.4 percent, the State Bank of Vietnam (SBV) said.

It said the decision was taken to balance supply and demand, and increase flows in the foreign exchange market "while contributing to controlling the trade deficit and stabilizing the macro economy."

Vietnam's trade deficit reached 12.2 billion dollars last year.

The central bank maintained the 3.0 percent daily trading band for buying and selling U.S. dollars by commercial banks.

Because the band remains unchanged there was no official devaluation, a banker said, but in practice the new interbank rate means the dong loses value, "so we can say it's a devaluation."

Devaluation coupled with lower interest rates aims to encourage businesses to sell dollars to banks, said the banker, who declined to be named.

"This (interbank) rate might be maintained in the next few months in order for the state to control the trade deficit," she said.

In November the central bank effectively devalued the dong by 5.4 percent and reduced the trading band from 5.0 percent.

Hanoi also late last year ordered companies to sell U.S. dollars to state banks, after months of official intervention to prop up the local unit.

Other observers have also expressed concern about a return to soaring prices, as authorities look to prevent a recurrence of overheating that pushed inflation to an annual 23 percent in 2008.

Consumer prices rose 7.62 percent year-on-year in January, official figures showed, boosting expectations that authorities will gradually tighten monetary policy this year, analysts say.

Vietnam beat its annual inflation target of seven percent in 2009, according to official figures, despite signs that prices increased more at the end of the year due to a stimulus package aimed at fighting the global downturn.

The latest devaluation came during a period of high demand for cash before a week-long Lunar New Year holiday.

In its order yesterday, the SBV also set the maximum interest rate for corporate dollar saving accounts at a maximum of 1.0 percent, less than lenders had been offering.

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