Reuters

Vietnam's central bank pledged Thursday to keep the foreign exchange rate stable, looking to dispel market uncertainty following media reports suggesting the currency would be devalued by 4 percent.

The State Bank of Vietnam, which has devalued the dong four times in the past two years, said the reports had caused "psychological uncertainty" in markets and were false.

Instead, it cited relatively stable economic indicators and positive developments in domestic markets. It also suggested dollar liquidity, which dried up late last year putting the dong's exchange rate under pressure, had improved.

The central bank said not only could credit institutions buy foreign exchange but the central bank had been able to buy $1 billion from banks since mid-April to boost foreign reserves. Markets now had dollar surpluses, it said.

It did not provide the current level of the reserves. The Asian Development Bank has said gross reserves fell to $15 billion at the end of last year from about $23 billion at the end of 2008.

Vietnam's economy was buffeted by domestic overheating in 2007 and early 2008, and then the global financial crisis in late 2008 and 2009. Growth fell to 5.3 percent last year from an average of more than 7 percent over the past decade.

After a two-year slide against the dollar, the dong has been stable since February, which some analysts attributed in part to an improving economy following the global downturn and the central bank's decision this year to free up lending rates.

Other economists worry that inflation will be high and the trade deficit will widen this year, damaging the outlook for the dong.

Annual inflation hit 9.23 percent in April, above the 2010 government target of 8 percent. The trade deficit widened sharply in the first four months of 2010 to $4.65 billion from a year-earlier gap of just $215 million.

Saigon Securities Inc, one of the country's top brokerages, said in a note on Wednesday that it stood by its call originally made in March that the dong would depreciate by 4 percent this year.

The dong, which is managed in a trading band, was last devalued in February by 3.35 percent. At the time, a dollar shortage in the economy had forced a gap between the official dong rate and the black market rate.


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