Vietnam's central bank declared Wednesday that it would devalue its currency-the dong by 5.44 per cent, effective Thursday.

The central bank will also increase its key interest rate from 7 per cent to 8 per cent, effective on December 1.

Speaking on the topic, economist Tai Hui said, "We have seen a significant amount of devaluation pressure on the dong in recent weeks. The rate hike is there to support the dong."

Trading band of the dong will also be curtailed from current 5 per cent to 3 per cent, effective Thursday.

As per an estimate, Vietnam's reserves have dropped from $22 billion at the start of 2009 to about $16.5 billion.

On November 12, Vietnam lifted an 18-month old ban on gold imports to check panic buying that had dragged the dong down.

This is the third time in the last two-year period that Vietnam has devalued its currency. Previous attempts to check a long term slide in the currency had shown little effect.