Vietnam’s central bank increased its refinancing rate for the first time since May, as the nation tries to steady its currency and tame Asia’s fastest inflation.
The State Bank of Vietnam raised the refinancing rate to 15 percent from 14 percent, effective Oct. 10, it said in a statement on its website yesterday. The central bank weakened the dong’s reference exchange rate for the third straight day today, to 20,653 per dollar from 20,648 per dollar.
Vietnam has struggled to regain investor confidence hurt by inflation of more than 20 percent, a trade deficit and risks in the banking sector. While the rate increase is welcome, the central bank should further tighten monetary conditions if necessary to reassure the market that economic stability remains its top priority, the International Monetary Fund said.
“Vietnam had to raise rates, but a rate hike won’t change the weaker dong trend,” said Shigehisa Shiroki, chief trader on the Asian and emerging-markets team at Mizuho Corporate Bank Ltd. in Tokyo. “The country has a trade deficit and like many other Asian nations now, money is not flowing into Vietnam either due to risk aversion. The dong will continue to see downward pressure.”
The currency was little changed at 20,843 per dollar as of 12:00 p.m. in Hanoi, according to data compiled by Bloomberg. The weakening of the reference exchange rate on Oct. 5 was the first change since Aug. 24. The dong was devalued for the fourth time in 15 months on Feb. 11, by about 7 percent, partly to help curb the trade gap. The VN Index of stocks fell 0.8 percent.