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Vietnam currency at bottom of new trading band limit

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November 7, 2008

Vietnam currency at bottom of new trading band limit
The Vietnamese dong fell on Friday to the bottom end of its newly widened trading band against the dollar in the interbank market, hitting a record low in the process, reported Reuters.

The currency dropped to 17,000 dong per dollar in early trade before recovering to 16,935 moments later, Reuters data showed.

The central bank on Friday widened the daily band in which the dollar/dong could be traded to +/- 3 percent around a daily fixed mid-point from +/- 2 percent.

The mid-point set by the central bank on Friday was 16,503 dong per dollar, so the fall to 17,000 marked the limit of trade for the currency.

Despite hitting a record low in interbank trading, the dong tumbled in mid-June to nearly 20,000 per dollar on the black market as the government struggled to contain inflation and grappled with a widening trade deficit.

On Friday, black market traders quoted the dong at 17,150 per dollar, a shade weaker than 17,120 on Thursday.

Friday's move was central bank's third widening of the dong's trading band so far this year and analysts said the move reflected a desire to allow it to weaken to support Vietnam's economic growth by keeping exports competitive amid a global slowdown.

The state-run BIDV bank said in a statement it would sell dollars on Friday for no more than 16,950 dong, slightly less than the 3 percent ceiling.

The top bank for foreign trade, Vietcombank, said it would sell the dollar for less than 17,000 dong per dollar on Friday.

The bank's chief executive, Nguyen Phuoc Thanh, expected the dollar/dong exchange rate to hover around 17,000 dong by the end of 2008, the Thanh Nien daily reported.

Vietnam's trade deficit during the first 10 months of the year jumped to $16.3 billion, more than 65 percent bigger than a year earlier, in part due to high oil prices earlier in the year.

Vietnam has had 12 straight months of double-digit inflation. The consumer price index rose in October by 26.7 percent over a a year earlier.

But with global economic clouds gathering, the government has expressed concern over gross domestic product growth and backed its words with actions. Earlier this week it cut interest rates for the second time in as many weeks.

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