Vietnam Money - Dong rises vs dollar on policy

HANOI, Feb 16 (Reuters) - The dong rose marginally against the dollar in the past week following a central bank comment that it aimed to keep exchange rates stable this year, suggesting it would add more dollars to the banking system, bankers said.

The dong VND= gained about 0.8 percent from a week ago to around 17,500 dong on Monday. The rates on the unofficial markets also hover around 17,500-17,550 dong, compared with a range of 17,650-17,680 dong last Monday.

Foreign banks forecast the dong to fall to as low as 18,000 dong by the end of the first quarter and to 18,500 dong per dollar by the end of the year due to a drain on foreign exchange reserves on the back of sharp declines in foreign investment and falling exports.

“The central bank’s reassurance last week lent strong support to the dong,” a banker at a foreign bank in Ho Chi Minh City said.

Last week Deputy State Bank Governor Nguyen Van Binh said the bank’s priority this year was to keep the dong stable with the mid-point of the dollar/dong rate at around 16,989 dong per dollar to steer the economy to recovery.

Binh said the government had sufficient foreign exchange reserve to balance the supply and demand this year. The reserve now stands at about $22 billion.

Meanwhile a decision by the Finance Ministry last week to issue domestic dollar bonds would help raise demand for the dollar, bankers said.

“The dollar would rise if the issue is sizeable,” a banker in Hanoi said.

The government said on Sunday the finance ministry would sell dollar-denominated government bonds on domestic markets this year to raise funds for key projects and finance state budget deficit but stopped short of providing the timeline and size of the issues.

The government let the tightly controlled currency depreciate by about 8 percent against the dollar last year in the face of tough economic conditions, and economists had expected Hanoi to allow it to slip further this year to support exports. (Reporting by Nguyen Nhat Lam; Editing by Jan Dahinten)