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Dong near record low on concern inflation to quicken


Vietnam’s dong reached a record low on concern inflation will accelerate, deterring investors and prompting exporters to hold onto their dollars as a hedge against rising prices. Bonds gained.


The central bank told lenders to rein in credit as inflation is showing signs of quickening through the rest of the year, according to a statement on the bank’s website on July 15. Demand for the greenback has exceeded supply at Vietnamese banks as exporters are hoarding the dollar, the monetary authority said on July 10. Companies are unable to access dollars to pay bills, an importer said Wednesday.

“I would stay clear of the Vietnamese dong at this stage really,” Thio Chin Loo, a senior currency analyst at BNP Paribas SA, said Thursday in a Bloomberg Television interview. “Vietnam has problems with trying to control inflation, which was one of those bear-bugs of the currency over the past year.”

The dong slid to VND17,862 a dollar, an all-time low, before trading at VND17,813 as of 2:32 p.m. in Hanoi, according to prices from banks compiled by Bloomberg. The currency has weakened 1.8 percent this year.

Domestic banks can only supply about half of importers’ demand for US dollars, so “we’ve been forced to source the rest from the black market at an additional cost of 5 to 6 percent,” Le Phan Duc, deputy general director at Vietnam

Germany Steel Pipe Joint Stock Co., which imports raw materials from South Korea, Taiwan, China and Russia, said Wednesday.

Consumer prices

Gains in consumer prices have decelerated for 10 months to 3.9 percent in June, the slowest since January 2004, after reaching a peak of 28.3 percent in August, the fastest in Asia. The General Statistics Office in Hanoi may release July data as early as this week. BNP Paribas’ Loo predicted inflation may accelerate later this year.

Standard Chartered Plc’s Tai Hui, head of Southeast Asian economic research in Singapore, Thursday forecast the dong will slip to VND18,500 by the end of the year.

The State Bank of Vietnam fixed the reference rate at VND16,965 a dollar, compared with VND16,963 on Wednesday, according to its website. The currency is allowed to trade up to 5 percent on either side of the set rate.

Government bonds advanced Thursday, with the yield on the benchmark five-year note dropping 20 basis points to 9.57 percent, according to prices compiled by Bloomberg. A basis point is 0.01 percentage point.

“Some commercial lenders with idle cash have switched to bonds after the central bank told them to slow lending for the rest of the year,” Trinh Hoai Giang, deputy general director at the Ho Chi Minh City Securities Co. said by phone.

Source: Bloomberg