Vietnam's central bank devalued its currency for the first time since 2011 and cut the interest-rate cap on dollar deposits to help "improve" the balance of payments and boost foreign-exchange reserves.

The State Bank of Vietnam weakened its reference rate by 1 percent to 21,036 dong per dollar, effective today, according to a statement released yesterday. The currency, which can trade as much as 1 percent either side of the rate, fell 0.9 percent to 21,205 as of 4:57 p.m. at banks in Hanoi, the most since Aug. 9, 2011, according to data compiled by Bloomberg. The fixing has been kept at 20,828 since Dec. 26, 2011, and the spot rate touched a record 21,036, the lower limit of the band, on most days in June.

The change in the reference rate is the biggest since a record 8.5 percent cut in February 2011 and comes after the government announced yesterday that imports exceeded exports by $1.4 billion in the first half of this year. The economy expanded 4.9 percent in the first six months from a year earlier, official data show. The government's full-year growth target of 5.5 percent will be extremely difficult to meet, Do Thuc, head of the General Statistics Office, said yesterday in Hanoi.

The trade balance has swung back into deficit, Tim Condon, head of Asian research at ING Groep NV in Singapore, wrote in a note today. Devaluation is the standard policy response when this happens.

Eoin Treacy's view Vietnam's less than 0.89% devaluation of the Dong suggests the country is not willing to sit idly by as the Dong appreciates versus the currencies of its neighbours. The size of the devaluation suggests that the administration is also still intent on combating inflationary pressures.

The Vietnam Index has pulled back to test the lower side of its three-month range and the region of 200-day MA, finding at least short-term support this week. It will need to hold above or in the region of this week's lows if the medium-term upside is to continue to be given the benefit of the doubt.