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Vietnamese Dong Softens Further

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The International Monetary Fund said Thursday that Vietnam's economy faces "significant challenges" as the country wrestles with 19.8% inflation and a weakening dong.

In February, the Vietnamese central bank devalued the purplish-pinkish dong by 8.5% and instituted measures to help fight "dollarization" of the country's economy.

"The immediate challenge will be to respond to the upward trend in inflation, and prevent it from feeding into higher inflation expectations and putting pressure on the dong. This requires further increases in policy rates," the IMF added.

According to Bloomberg, Benedict Bingham, the IMF's senior resident representative in Vietnam, said, "In many quarters, the current stability of the dong is still seen as just a temporary phenomenon."

He noted that the government must prove that, among other things, it will be able to "sustain its current monetary policy course." Until then, "risk premia on Vietnamese assets and particularly dong assets will remain high."

Deputy Governor Nguyen Van Binh responded that the central bank "will continue to implement well-structured and cautious monetary policies... in line with the market developments and macroeconomic objectives."

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