Vietnam’s central bank deputy governor Nguyen Thi Hong talked to the media after it devalued the Vietnamese dong by 1% for the third time this year and widened the trading band to 3% on August 19.

Q: What are the reasons behind the latest exchange rate adjustment?
A: The State Bank of Vietnam (SBV) on August 12 widened the dong trading band from 1% to 2% as an initial proactive response to the largest depreciation of the Chinese yuan in the past 20 years. Market developments both at home and abroad in the following days indicated that it was a timely measure in keeping with the current situation and was considered a positive move by the public.
However after the strong devaluation of the Chinese yuan, domestic market sentiment was still concerned over the possible consequences of an interest rate rise by the US Federal Reserve. To continue leading the market proactively and pre-empt any adverse impacts of the Fed’s rate rise in the future, the SBV decided to increase the USD/VND exchange rate by 1% and widen the trading band from 2% to 3%.
Q: Why did the SBV choose to make two separate adjustments with one following another after just a week instead of a single adjustment?
A: As I said above, widening the trade band to 2% on August 12 was an initial response to counter the effects of the sudden yuan devaluation. If only one adjustment were made after China devalued its currency, the market would consider it as a response only to the impacts of the yuan and continue to expect further exchange rate adjustments from the SBV, which would adversely affect the stability of the currency market. At that time, the SBV was considering the expansion of the trading band by one percentage point as an appropriate and timely measure, and to avert false market expectations. After the SBV widened the trading band, the market was trending towards stability but domestic market sentiment was still concerned over possible consequences of a Fed rate rise. Therefore in order to lead the market, the SBV decided to increase both the exchange rate and trading band by one percentage point on August 19.
Q: What are the SBV’s policy orientations in the final months of the year?
A: By increasing the exchange rate by 1% and widening the trading band to 3%, the SBV has given the Vietnamese dong ground large enough to be flexible against the adverse developments on both the domestic and international markets not only in the final months of the year but also into the early months of 2016, bringing stability to the currency market and ensuring the competitiveness of Vietnamese goods. With the goal of stabilising the market, the SBV has prepared a set of necessary measures and tools and is willing to intervene by selling foreign currencies to stabilise the exchange rate and the market within the set band.
Thank you very much.