After the State Bank's decision to increase the inter-bank average exchange rate by 1 per cent on January 7, numerous banks increased the US dollar exchange rate. HSBC experts said further Vietnamese dong weakness would only be moderate, as underlying fundamentals had not deteriorated. They expected another 1 per cent depreciation later this year, pushing the rate to VND21,750 per dollar.

The experts said US$-VND had been trading closer to the top side of the band through the course of December in line with the much stronger US dollar seen over the last few months. This shift in the reference rate should be seen as something of a catch up with other emerging market currencies. Indeed, a 1 per cent fall in Vietnamese dong versus the US dollar actually represented a continued outperformance versus most other Asian currencies since the start of the first quarter, they said.

In response to the State Bank's decision, selling prices ranged from VND21,420-VND21,450 and purchasing prices were set at VND21,510-VND21,520 per US dollar at commercial banks including Vietcombank, Vietinbank, Eximbank and Techcombank.

This is the first time this year the State Bank has adjusted the exchange rate, a move that aims to bring the market in line with the international and domestic financial market climate and stabilise the foreign exchange market. The central bank plans to implement measures and policy instruments to stabilise the exchange rate and foreign currency market on the new rate platform.