Vietnam dong slides in forwards market

HANOI, June 3 (Reuters) - Offshore forwards markets on Tuesday are pricing in a 39 percent fall in the Vietnamese dong in a year but the risk of a sharp official devaluation in the currency remains small, Goldman Sachs said in a report.

Vietnam's developing economy and the dong are under pressure from inflation running at more than 25 percent and rising imports, but "the probability of a balance of payments crisis is not large enough to make it our baseline scenario yet", the U.S. investment bank said in its report on Tuesday.

The State Bank of Vietnam, the central bank, set the dong's official exchange rate at 16,099 per dollar on Tuesday, the lowest level since Jan. 28.

In the offshore market PNDG, the non-convertible dong eased to 22,150/23,150 per dollar on one-year term by 0259 GMT, implying the currency will be worth 39.3 percent less in a year's time. The dong's spot rate VND= is 16,250/16,260 per dollar on onshore markets.

While deals are small in offshore forwards markets, the dong's nearly 40 percent decline in value suggests investors are growing pessimistic about the heightened risk of a gradual depreciation.

"On the currency front, our current assessment is that the likelihood of the central bank being forced into taking an abrupt and sharp nominal devaluation in the near term remains small," analyst Helen Qiao said.

"However, we believe it has become more likely for the monetary authority to consider the option of an accelerated pace of devaluation against the USD, to prevent the VND from being excessively overvalued in real terms."

Last Friday, the non-deliverable one-year forward rate was 21,000/22,000 dong per dollar, implying a fall of 29.3 percent.

Morgan Stanley had issued a research note saying "the VND is heading towards a standard, late-cycle 'currency crisis'," citing government figures on the tripling of the trade deficit and inflation, the third highest in Asia after Sri Lanka and Myanmar.