VINACHEM

HA NOI – The US dollar-Vietnamese dong exchange rate is expected to hold steady to the end of this year, but ANZ bank anticipates a dong devaluation early next year.

According to the bank's report released today, Government efforts to stabilise the foreign exchange market and restore confidence in the dong were having a positive effect.

The dong onshore trading rate has stabilised in the VND20,550-VND20,650 per US dollar range in recent months.

In the offshore Non Deliverable Forward (NDF) market, the dong's implied 12-month discount has narrowed by 2.2 percentage points from its post-devaluation peak in February. The dong's one-month NDF discount has also stabilised around 1.0 per cent.

"The State Bank of Viet Nam (SBV)'s more aggressive stance on inflation and changes in its FX policy are behind the recent stabilisation," ANZ's report said.

However, ANZ expects the dong to be devalued by 3-4 per cent in 2012 as inflation remains in double-digits. The dong's real effective exchange rate (REER) – a measure of its cost competitiveness – has appreciated by 5.6 per cent since March, which will adversely impact on the trade deficit and exacerbate Viet Nam's already fragile balance of payments position.

Viet Nam's inflation climbed to 19.8 per cent year on year in May, marking a 29 month-high. – VNS