Display mode (Doesn't show in master page preview)

12 May 2015

International Economy

Vietnam Devalues the Dong for Second Time in 2015 to Bolster Economy (Current Issue No. 2625 Full Ed.)

On May 7, the State Bank of Vietnam (SBV) devalued the Vietnam Dong (VND) by 1 percent for the second time this year amid ebbing exports and a trade deficit seen during 4M15. This move constitutes an SBV monetary policy option to ensure that Vietnam's 2015 export growth target of 10 percent is met. If so, exports would be a significant engine to GDP growth, wherein they hope to achieve 6.2 percent this year. There is a high likelihood that the VND will be devalued further if exports continue to lag their annual growth target. The latest cut in the VND reference rate to VND21,673 per USD is thus a signal from the SBV of bias towards monetary easing stance.
Meanwhile, the Bank of Thailand's latest policy rate cut, which was undertaken shortly before the announcement of various measures to promote capital outflows at the end of April, caused the Baht (THB) to fall swiftly, while the VND remained almost stagnant. As a result, the THB has weakened substantially versus the VND when compared to that seen at the beginning of the year.

The depreciating THB in line with other regional currencies may help sustain Thai export performance ahead, but we at KResearch are of the view that a weaker THB would not significantly enhance Thailand's export competitiveness, e.g., versus Vietnam, because it stems from Thailand's structural problems, rather than the THB value, being an immediate problem. Nevertheless, a weaker THB/VND rate may help support Thai exports to Vietnam, which is our key ASEAN trade partner. We expect that shipments sent there will grow 10-15 percent in 2015.

View full article


Enter the code from the poll

International Economy