Vietnam may tap foreign reserves to bolster currency: central bank

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An employee of a bank counts U.S. dollar notes at a branch in Hanoi, Vietnam. Photo by Reuters.

Vietnam's currency, the Dong, has weakened against the U.S. dollar in recent days due to mainly psychological factors, the deputy governor said in a statement posted Thursday on the central bank’s website.

At the end of the day, the dong had fallen to 22,795 per dollar at major banks, hitting the bottom of the three-percent trading band set for the day.

The slump left the dong 1.3 percent weaker than it was at the end of last year.

The previous day, the central bank website carried a story that quoted Deputy Governor Nguyen Thi Hong as saying the state lender stands ready to sell foreign currency to stabilize the exchange rate.

The bank began setting an official mid-point for the exchange of dong to dollars, earlier this year.

Since adopting the more flexible exchange rate rules, investors have flocked to the greenback, according to deputy governor Hong.

Nevertheless, Hong has seen no upward pressure on demand for dollars and liquidity remains good thanks to increased foreign direct investment, inflows of foreign capital through mergers and acquisitions, and overseas remittances in the final two months of the year.

Vietnam reported a trade surplus of $3.25 billion in the first ten months of 2016.

The central bank added that it will allow commercial banks to extend short-term foreign currency loans until the end of 2017 to meet demand for dollars among exporters and importers.

Foreign exchange market: bumpy ride in next few months The dong/dollar exchange rate unexpectedly fluctuated in late October with the official rate quoted on October 29 ...

Last month the central bank reported that its total foreign currency reserves had increased to a record high of $40 billion, which is enough to cover three months of imports.