Asia’s worst currency, the Vietnamese dong, will continue to drop as inflation rises. This is the largest drop in the last 10 years say the experts at HSBC. The dong has gone down by .7% this year, and that has voided any of last years gain. Another slow down to this, the world’s worst currency, are high food and oil prices. The increase in these commodities may cause the nations deficit to rise and slow any earnings made by corporate growth.
A foreign exchange strategy expert at HSBC, in Hong Kong, Richard Yetsenga said "We see some near term weakness, and the key concerns are that inflation and excessive domestic growth have been allowed to persist. These economic pressures have caused the dong to go from positive to negative"
Other financial institutions in agreement with HSBC are ABN Amro Bank NV, and Morgan Stanley. Amro says the dong will go lower, and published a report to that effect last week, and Morgan Stanley, who earlier in the year predicted a 4% gain, says that their prediction "may have been too optimistic."
To make matters worse, Goldman Sachs Group Inc. reported that the State Bank of Vietnam purchased a large amount of dollars in March, which again caused the dong to go down by about 1.8%. The purchase was intended to make the nations exports more sought after.
As of yesterday, the dong was at 16,110.5 and may go down another 0.7% by the middle of the year, reaching as low as 16,217 and end the year out not much higher than 16,135, according to HSBC expert Yetsenga.
Economic Growth has also Slowed
Due to slowing global economy, the economic growth slowed during the first quarter to 7.4%. Due to this information and the nation’s inflation rate, Vietnam has stated that it intends on reducing the targeted growth rate to 7% this year.
The depreciation of the dong is caused by several factors, according to the financial experts, and those factors vary, but what is known is that the dong has changed very little since April, when the central bank informed the financial world that it would expand the dongs daily trading band to 2% on either side of a daily fixed rate. The purpose of doing this was to slow the 19.4% inflation rate, but the government did not mention when the State Bank of Vietnam would widen this band.
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