August 1, 2018 / 2:22 PM / 10 months ago

Vietnam PM says to limit dong devaluation at 2 pct this year

HANOI, Aug 1 (Reuters) - Vietnam will limit its devaluation of its dong currency at 2 percent this year and stick to its macroeconomic targets despite a slide in the yuan and a trade war between China and the U.S., its top trading partners, the prime minister said on Wednesday.

Vietnam “needs to stabilize the exchange rate and keep it flexible within a 2 percent band compared with the end of last year,” said Prime Minister Nguyen Xuan Phuc in a statement on the government website.

Several local economists last month advised the government to devalue the dong to keep exports competitive amid the devaluation of the yuan and other regional currencies.

The central bank’s reference exchange rate has fallen by nearly 1.1 percent against the dollar since the end of last year, according to the State Bank of Vietnam. On the interbank market, the dong has slid by 2.56 percent.

“We won’t move ahead of the international monetary market as advised by many, given that there haven’t been any real impacts,” Phuc said, referring to the impact of the U.S.-China trade war and the yuan devaluation.

July saw an 8 percent erosion in the yuan’s value against the U.S. dollar since April, marking its worst 4-month fall on record. Losses were driven by concerns over rising U.S. interest rates, falling Chinese yields and heated trade tensions.

Vietnam’s stock market, Asia’s top performer with 48 percent gains in 2017, has fallen 21 percent from its record high in April as investors grow nervous about the impact of trade tariffs on the global supply chain and its economy.

Despite the challenges, Phuc, however, said his government will stick to its growth targets for the year, including GDP growth of 6.7 percent and an inflation capped at 4 percent.

“The economy is still facing numerous imminent difficulties, challenges and risks, including risks related to trade, currency and capital flows ... especially the U.S.-China trade conflict, the U.S.’s tariff policy and Chinese yuan devaluation,” according to the government statement.

“The general consensus is to maintain macroeconomic stability, better manage inflation, improve the confidence of the society, of the market and of businesses,” Phuc said.

China was Vietnam’s largest trading partner last year. The Southeast Asian country relies heavily on China for materials and equipment for its labour-intensive manufacturing. Meanwhile, the United States is its largest export market.

Vietnam runs a huge trade deficit with China and enjoys a trade surplus with the United States, which Trump has been unhappy about. This has raised fears that Washington may also slap tariffs on the small country. (Reporting by Khanh Vu Additional reporting by Mai Nguyen Editing by Matthew Mpoke Bigg)

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