Vietnamese Prime Minister Nguyen Tan Dung has told the central bank to take “strong” steps to stabilise the foreign exchange and gold markets, and requested the finance ministry to implement price controls on certain goods.

Vietnamese Prime Minister Nguyen Tan Dung has told the central bank to take “strong” steps to stabilise the foreign exchange and gold markets, and requested the finance ministry to implement price controls on certain goods.

The calls came as the dong weakened to 21,470/21,570 per dollar on unofficial markets, nearly 10 percent below the legal limit mandated by its trading band, and as forecasts put full-year inflation above 10 percent. The official government target is 8 percent.

The State Bank of Vietnam should “implement in a timely manner strong and effective measures to ensure the control and stability of exchange rates, gold prices and interest rates”, Dung said in instructions issued on Tuesday, according to the government’s website, www.chinhphu.vn.
Unlike other currencies in that region that have been strengthening on the back of U.S. quantitative easing, the dong has been slipping under domestic pressures including rising inflation, a persistent trade deficit, soaring gold prices and widespread expectations of its weakness.

Gold prices and the dong are strongly correlated: when gold prices rise the dollar tends to gain against the dong onshore.

On Wednesday, gold was trading in Hanoi at 36.27/36.37 million dong per tael, putting it on par with global gold prices . One tael equals 1.21 ounces.

The central bank should cooperate with provincial authorities to investigate and handled cases of speculation, illegal gold trading and foreign exchange market manipulation, Dung’s instructions said.

It gave no further details.

In early November the authorities said they would not devalue the beleaguered dong before at least Tet, the Lunar New Year festival, which falls in early February 2011, pledging instead to tap foreign exchange reserves to meet dollar demand.

The central bank also raised its three policy interest rates by 100 basis points on Nov. 5, and also granted fresh gold import licenses and quotas to narrow a gap between domestic and global prices that traders said had fuelled dollar demand.