Vietnam cbank intervenes to support dong -sources

HANOI, Sept 6 Tue Sep 6, 2011 1:36am EDT

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HANOI, Sept 6 (Reuters) - Vietnam's central bank has been selling U.S. dollars to banks in recent weeks to support the weak dong , which has come under pressure since early August following months of stability, market sources said.

The State Bank of Vietnam (SBV) has sold an estimated $1.5 billion to five or six large state-run and partly-private banks since mid-August, two sources who closely follow the Vietnamese currency market estimated.

Two other sources declined to estimate the total value of the intervention but said some banks had been sold between $15 million and $35 million a day over about three weeks.

Intervention in the currency market is not unprecedented for the SBV, but past attempts have proven ineffective at sustainably supporting the dong, which has fallen by more than 20 percent against the dollar since mid-2008.

Central bank governor Nguyen Van Binh declined to comment when asked about the dollar sales late last week. Other central bank officials have also declined to comment.

The sliding dong has been one of a host of problems plaguing Vietnam's once-promising economy, along with spiraling inflation, a debilitating trade deficit, lumbering state enterprises and slow responses to power shortages and other infrastructure woes.

In February, the SBV devalued the currency by 8.5 percent, the biggest devaluation since the 1997-98 Asian financial crisis, and pledged flexibility on the exchange rate.

The government also instituted a series of measures to try to de-dollarise the economy. This helped stabilise the dong for a time, during which the SBV compelled state-owned enterprises to sell it their dollars from exports.

The government said last week the bank had purchased $6 billion since the start of 2011 to beef up its dwindling foreign exchange war chest.

The volume of dollars the SBV has sold in its recent interventions to bolster the dong has been "significant in terms of total reserve size," said one source.

The SBV does not divulge the current level of foreign exchange reserves, but a senior government advisor told Reuters last month the total had slipped to $7 billion to $8 billion earlier this year. It was $23 billion in 2008.

The central bank this year has been more flexible on setting the dong's midpoint . From April 19 to July 9, the midpoint strengthened 125 dong to 20,608 dong and the currency traded mostly within its band of 1 percent on either side of that rate.

But success in stabilising the currency was hurt in early August when a rise in global gold prices sparked renewed pressure. The unofficial rate resumed trading outside the official band, traders say.

Since Aug. 24, the midpoint has been unchanged at 20,628 to the dollar.

On Aug. 11, Binh was quoted in an interview with a state-run newspaper as saying the State Bank would intervene "when there are problems with demand and supply."

He added: "Our foreign exchange reserves at this moment allow us to intervene at the necessary level."

Bouts with double-digit inflation as well as wide trade and budget deficits have hurt the dong, which locals nimbly dump whenever uncertainty arises or gold prices surge.

For a daily look at dong exchange rates, click . (Editing by Jason Szep and Richard Borsuk)

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