The change, intended to make the currency more export friendly, was the fourth for the year as the central bank attempts to deal with the volatile fluctuations on both domestic and global foreign-exchange markets.

The decision, effective from today, is also designed to closely reflect -foreign-currency supply and demand and to reduce the burgeoning trade deficit.

The band was plus or minus 0.5 percent at the start of January and before, this year the central bank made only minuscule changes to it.

Viet Nam paid US$70.06 billion for imports in the first ten months of the year against total foreign-currency income of $53.77 billion.

The trade deficit was $16.29 billion and in October alone, it totalled $700 million.

Demand for the dollar is forecast to further increase as foreign investors transfer money from Viet Nam to their own countries or mother corporations.

Interbank rate

The daily interbank rate was VND16,511 to the US dollar yesterday.

Vietcombank listed its buying-selling prices at VND16,850/16,841 to the dollar or the upper limit of the prevailing plus or minus 2 per cent trading band.

On the street, the dollar sold for more than VND17,000.

"The US dollar and the dong is likely to be traded at close to the upper limit of the trading band - plus 2 per cent above the daily interbank rate - because of the increasing demand for the green back," forecast HCM City Economic Research Institute director Tran Du Lich.

"A more expensive dollar [against the dong] will help the Government to reduce imports," he said.

But several importers assumed the dollar's appreciation against the dong would be limited.

"Consumers are still tightening their belts and demand in general, but for imports in particular, has fallen heavily, " said Nguyen Ba Anh, the general director of the Ha Noi-based computer-electronics importer ACB.

"If imported goods cost more, demand may go even lower".

Import companies may reduce their imported goods and the dollar may not hit the upper limits of the trading band."

Stimulus

The widening of the trading band is part of the State Bank of Viet Nam's effort to stimulate economic growth.

The central bank has taken series of monetary-policy decision in the past three weeks to free more money into the market.

Domestic banks now have an estimated $5.94 billion to lend.

The global economic turmoil has forced the Viet Nam Government to revise its yearly growth estimate to 6.7 per cent and after monthly inflation dropped 0.19 per cent in October financial planners are preparing to prevent deflation.

Other Asian countries are also likely to shift their focus from defeating inflation to sustaining growth.

Several Asian central banks have devalued their local currency to promote their exports.

The prime interest rate for the US dollar is now at 1 per cent and the currency is estimated to have depreciated about 10 per cent against euro; 5.51 per cent against Thai baht; 3.11 per cent against the Singapore dollar and 7.02 per cent against Malaysia ringgit so far this year.

Source: Viet Nam News