SBV mulls to raise dong deposit rate cap to 16pct

The State Bank of Vietnam (SBV) is mulling to raise dong deposit interest rate cap to 16 percent from current 14 percent in an effort to attract more dong deposits from the public into the banking system, the online newspaper Sai Gon Tiep Thi reported.

The rate hike is expected to improve liquidity position of local banks, especially small ones, the local media pointed out, noting that some lenders have lately negotiated to boost actual deposit interest rates to between 16 percent p.a. and 18 percent p.a

The banks cannot raise lending interest rates further from current 19-24 percent p.a. as the move would be unaffordable to local enterprises, the SGTT added.

The source also reported that the central bank is stepping up to buy foreign currencies to improve the country’s forex reserves, pointing out that decline in foreign currency sources must be balance with increase in dong supply to ensure stability in domestic currency’s circulation and help to achieve inflation-battling goal.

Therefore, the SBV is expected to buy back dollars gradually, making dollar prices to continue to fall against the dong or stand at a “low level”.

Vietnam’s dong on April 29 advanced to a two- month high on speculation the supply of dollars has increased after the government capped deposit rates for accounts denominated in the US currency. Individuals and companies have been selling about $10 million to $15 million a day to banks, the government said in a statement on its website.