The dong yesterday slid 5.3 per cent, as the central bank moved to keep the country competitive against cheaper regional neighbours. The State Bank moved its target rate from 11,175 dong to the US dollar to 11,800, in the first effective devaluation since October. By the close of the inter-bank market yesterday, the dong had hit 12,988 - the bottom of a permitted trading band of 10 per cent either side of the target rate. On the black market, it hit 13,800 to the dollar in some gold shops in Hanoi. Some shops were crowded, as black market activity soared amid speculation that the move could soon be followed by more devaluations of a currency estimated to be up to 40 per cent overvalued. 'This is a clear admission from the authorities that the dong is way overvalued,' one foreign banker said. 'If this move is seen as palatable, we can expect to see a lot more soon. Expect the step-by-step approach rather than one or two huge jumps.' Vietnam's key exports include rice and coffee, commodities that face stiff competition in price and quality from neighbours such as Thailand and Indonesia. The authorities are also keen to keep faith in the dong, and officials said they were alarmed by the prospect of an entrenched black market being created. Vietnam suffers from one of the lowest savings rates in the region, after years of mistrust following war and hard-line Marxist rule. Dollar and gold hoarding is rampant, leaving the interbank market quiet. Confidence in the dong is crucial if extensive hidden funds of dollars and gold are to be brought into Vietnam's fledgling banking system. Foreign analysts said protecting export growth was needed in the medium to long term, meaning a slow but steady programme of devaluations was vital. The non-convertibility of the dong had earlier insulated Vietnam from any direct impact of crashes in Thailand and Indonesia but it has begun to eat into exports.