Vietnam: Central Bank widens dong's trading band to cope with challenging external environment
August 12, 2015
On 12 August, the State Bank of Vietnam (SBV) announced a widening of the Vietnamese dong’s trading band from plus/minus 1.0 percentage points to plus/minus 2.0 percentage points. As a result of this decision, the inter-bank average exchange rate is now 21,673, the ceiling exchange rate is 22,106 VND per USD and the floor rate is 21,240 VND per USD. The exchange rate is allowed to fluctuate around a daily midpoint fixing set by the SBV. The move follows two devaluations of the dong of 1.0 percentage points each in January and May
The SBV defended its decision stating that the strengthening of the U.S. dollar since the beginning of the year has been much more solid than expected due to the anticipation that the United States will normalize the interest rate and uncertainty in Europe on the back of political developments in Greece. Moreover, the recent change in the exchange rate regime in China that entailed a sizeable weakening of the yuan was also decisive to adopting a more flexible exchange rate. With this move, authorities intend to maintain the competitiveness of Vietnam’s external sector.