VND Devaluation: Two Down, One To Go

We do not expect today's devaluation, taking the dong 3.4% lower to VND19,100/US$, to bring a lasting improvement to Vietnam's gaping trade deficit. We are thus still expecting a further devaluation, bringing the dong to VND19,500/US$ by end-2010, coupled with a tightening of fiscal and monetary policy. However, the possibility of a policy paralysis ahead of the 11th National Congress in January 2011 poses a downside risk to our dong forecast.

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