Vietnam Dong devaluation: timing in line with expectations
Timing of the State Bank of Vietnam’s dong devaluation is in line with expectations, although the magnitude is greater than forecast, said Standard Chartered Bank in its latest global research.
The State Bank of Vietnam announced on 11 February that the official USD-VND rate will be devalued from 18,932 to 20,693, with the trading band narrowed from +/-3% to +/-1%. This implies that the new official USD-VND ceiling is 20,900, up from 19,500.
The timing of the devaluation is in line with our expectations (see On the Ground, 27 January 2011, ‘Vietnam – Time to act’), although the magnitude is greater than forecast.
Today’s devaluation implies that our previous end-2011 USD-VND forecast of 20,800 has been reached. Table 1 shows our revised FX forecasts, along with our economic and government bond yield forecasts. In our view, the Vietnamese dong (VND) will remain under pressure throughout 2011 given the delicate balance of the country’s balance of payments, rising CPI inflation and the growth bias of the Vietnamese authorities.
The credibility of the State Bank of Vietnam (SBV) needs improvement given repeated one-off devaluations. Following today’s large move, which effectively takes USD-VND close to where the parallel market was trading before the devaluation, we expect the authorities to keep USD-VND roughly stable near-term.
However, we continue to expect one more devaluation in H2-2011 as rising CPI inflation, a widening trade deficit and low exchange rate credibility continue to put weakening pressure on the VND. In line with this, we have adjusted our USD-VND forecasts modestly higher, while maintaining the same profile.
We now forecast USD-VND at 20,900 at end-Q1, 20,900 at end-Q2, 21,800 at end-Q3 and 21,800 at end-Q4. The latest devaluation has had little direct impact on government bonds, as offshore involvement has been marginal and demand from domestic banks remains robust.
The Latest Devaluation Should Calm the Market, For Now
The latest devaluation implies that the official ceiling has moved much closer to the market clearing level seen in the parallel market. Ahead of the announcement, USD-VND was trading at around 21,300 in the parallel market.
We predicted in late January that a devaluation could take place after Tet (the Lunar New Year), but the magnitude of the move – with the exchange rate ceiling rising by 7.2% – was larger than expected. Subsequently, the USD-VND official exchange rate has already exceeded our 2011 year-end forecast of 20,800.
The latest policy announcement should provide further relief to the balance of payments, and ease downward pressure on the foreign exchange reserves. Local media reported on 9 February that foreign exchange reserves had declined to around USD 10bn from USD 16bn at the end of 2009. However, the latest devaluation could also lead to higher imported inflation in the months ahead, especially when combined with rising global commodity prices.
While the central bank remains comfortable with the current level of interest rates, we see a need for higher rates in order to pre-empt economic overheating risks.
After all, one of the reasons why local investors have switched from VND into USD and gold is to protect themselves from inflation. Without credible actions to maintain price stability, local investors may continue to switch out of VND assets into other currencies and assets. Government bond market – strong demand from banks
VND devaluation has had little direct impact on the local-currency government bond market. Offshore involvement is marginal , and demand from domestic banks remains strong as tight liquidity conditions begin to soften after Tet.
The SBV has maintained liquidity injections into the market via open-market operations, and interbank funding rates – which edged up in January – are beginning to ease. We expect strong demand from banks to support yields in the near term; however, risks are to the upside if a weaker VND adds to imported inflation.
Overall, in line with our forecasts of high inflation and 300bps of rate hikes in 2011, we maintain our
Incoming search terms:
- vietnamese dong revalue 2015 dong revalue 2015 Vietnam Dong Revalue News 2015 vietnam dong exchange rate forecast vnd revalue vietnamese dong revalue vietnam dong revalue 2015 vnd revalue 2015 Projected Vietnamese Dong Exchange Rate dong rv 2015 vietnamese dong rv vnd currency revaluation Vietnamese Dong Revaluation 2015 Status latest vietnamese dong news vietnamese dong revaluation 2015 vietnamese dong forecast vietnam dong revaluation 2015 will the dong revalue in 2015 vietnam currency revaluation 2015 rv dong 2015 vietnam dong currency reset New dong 2015 dong revaluation 2015 Vietnamese Dong Revalue Possibility vietnam dong rv 2015 vnd revaluation vietnam dong revalue is the dong going to revalue dong vietnam rv 2015 Dong Rv Projection Price vietnamese dong news 2015 VND Revalue 2016 when will vnd revalue currency revaluation 2015 vietnamese dong 2015 when is the dong going to revalue 2015 vnd revalue news 2015 vnd revaluation 2015 revaluation of vietnamese dong 2015 will the vietnamese dong revalue in 2015 Vietnamese Dong Predictions dong rv rate dong news 2015 vietnamese dong rv rate vietnam revalue 2015 dong revalue dong to revalue 2015 dong rv dong devaluation 2011 vietnam dong forecast is the dong going to revalue 2015 dong rv news today vnd rv vnd devaluation Vietnamese Dong revaluation latest dong rv news vietnamese dong prediction dong currency revaluation january 27 vietnamese dong when is it gonna revalue dong rv news 2015 dong devaluation whats going on with the dong rv 2015 vnd projections Dong Predictions dong revalue news is the vietnamese dong going to revalue dong reset 2015 vietnamese currency reset 2015 vietnam dong rv news when will the vietnamese dong revalue 2015 currency revalue 2015 vietnam dong revalue news vietnamese dong expectations vietnam currency devaluation vietnam currency revaluation 2013vndnews When will the dong revalue vietnam dong revaluation 2016 vietnamese dong revalue news 2015 whats going on with the dong vietnam dong revalue news today vietnamese dong revalue news 2016 Vietnamese Currency Revaluation News vnd reset 2015 VND REMAIN UNDER PRESSURE revalue of the dong vnd predictions Vietnamese currency revalue 2015 expectations for vietnamese dong vnd news 2015 dong rv latest news vietnam exchange rate forecast dong rv news Vietnam Dong devaluation: timing in line with expectations vietnam dong expectations vietnam dong revaluation future of the vietamese dong Vietnam Dong RV 2016 vnd revalue news vietnam dong to usd forecast the latest on vietnamese dong the future of the vietnamese dong VND future vnd devaluation 2011 vietnamese dong inflation Perdiction on vnd currency vietnamese dong reset 2015 vietnamese dong revaluation news vietnamese dong revaluation status is the vietnamese dong going to revalue in 2015 vietnamese dong rv news 2015 is the vnd going to revalue in 2015 latest VND predictions vietnamese dong revalue 2016 vietnamese dong revalue date vietnamese dong revalue news today 2015 vietnamese dong rv news january 27 2015 How will VND convert after the revaluation? revaluation of the dong 2015 revaluation of currency 2015 projected value of vietnamese dong in 2013 future of the vietnamese dong in 2011 future of vietnam dong VND ceiling rate vnd 2015 futurfor the dong vietnamien fx forecast in vietnam 2011 vietnsm currency revalue 2015 global currency revaluation 2015 vietnamese dong exchange rate forecast vietnamese dong revalue news today dong reset dong revalue 2015 jan 30 dong revalue 2015 feb 9 dong currency revaluation 2015 dong revalue 2015 feb 4 2015 dong revalue currency vietnam and others expected currency rv 2015 will dong revalue currency revaluation news 2015 dong currency forecast what is the highest prediction for the Vietnamese Dong for value 2016 prediction of dong revalue will the dong increase in value dong revaluation 2016 dong projected value 2014 dong forcast vnd/usd rate forecast 2013 dong revalue news today