According to ANZ's report released o­n Wednesday, Government efforts to stabilise the foreign exchange market and restore confidence in the dong were having a positive effect.

The dong o­nshore trading rate has stabilised in the VND20,550-VND20,650 per US dollar range in recent months.

In the offshore Non Deliverable Forward (NDF) market, the dong's implied 12-month discount has narrowed by 2.2 percentage points from its post-devaluation peak in February. The dong's o­ne-month NDF discount has also stabilised around 1 per cent.

"The State Bank of Vietnam (SBV)'s more aggressive stance o­n inflation and changes in its FX policy are behind the recent stabilisation," ANZ's report said.

However, both ANZ and Standard Chartered Bank assumed that depreciation pressure would resume next year due to rising inflation, a widening trade deficit, low FX reserves, and the risk of new policy mistakes.

ANZ expects the dong to be devalued by 3-4 per cent within the first quarter (Q1) 2012 as inflation remains in double-digits. The dong's real effective exchange rate (REER) – a measure of its cost competitiveness – has appreciated by 5.6 per cent since March. Further REER gains will adversely impact o­n the trade deficit and exacerbate Vietnam's already fragile balance of payments position.

Yesterday, Standard Chartered Bank also pushed back expectations of a further devaluation in the dong from Q3 this year to 2012. It forecast the exchange rate at the end of Q3 to be VND20,600 per dollar and VND20,600 at end-Q4. At the end of Q1 in 2012 it expects the rate to be VND21,400 and VND21,400 at end-Q2. It predicts a further rise to VND22,000 at Q3-end and VND22,000 at the end of Q4.

"The change in our FX forecasts reflects encouraging steps by the Vietnamese authorities to tighten monetary policy and their commitment to maintaining a stable exchange rate," Standard Chartered said.

Standard Chartered factors in dong devaluations of 6.8 per cent next year - comparable to the average yearly dong devaluation between 2008-10.

Vietnam's yearly inflation climbed to 19.8 per cent in May, marking a 29-month high - the fastest rise in any of the 14 Asian economies tracked by Bloomberg.

Vietnam's trade deficit reached $1.7 billion - its greatest level in 17 months. In April it stood at $1.49 billion. The May deficit brought the total for the year to $6.59 billion, wider than the $5.46 billion deficit at the same point last year, putting further pressure o­n authorities to address imbalances in the economy.