According to Bloomberg article published on October 17, 2022, Vietnam’s central bank widened the dong’s trading band, signaling authorities are willing to tolerate more weakness in the currency.
The State Bank of Vietnam widened the dong’s daily trading range to 5% on either side of the fixing rate from 3%, effective Monday, it said in a statement on its website on the same day. The dong dropped as much as 0.8% to 24,310 per dollar to set a new record low.
“This is a signal to the market that it’s tolerating more FX weakness and volatility,” said Trinh Nguyen, a senior economist at Natixis SA in Hong Kong. “It suggests the central bank is less willing to use reserves to defend the dong.”
The US dollar’s relentless climb higher is forcing central banks to step up intervention, with emerging nations at risk of exhausting their dollar reserves too soon. Vietnam’s decision underscores the path that some nations may take to conserve their firepower, in contrast to others like China which is keeping a tight leash on the yuan.
Proactive
The adjustment was made “in order to proactively cope with unpredictable developments in the international market” and monetary policy tightening by global central banks, SBV said. The move came three weeks after the monetary authority surprised with a 100-basis-point interest-rate hike.
Vietnam’s foreign reserves held near a record $109.6 billion in February, according to International Monetary Fund data. The nation doesn’t regularly release reserves data.
The central bank also said it will “closely monitor market developments, coordinate monetary policy tools, and be ready to sell foreign currencies to stabilize the market.” It set the dong reference rate at a record low of 23,586 per dollar on Monday.
The dong has room to weaken further to 24,700 per dollar, Natixis’ Trinh said.
