Dong rate hikes on the cards
The Bank for Investment and Development of Vietnam (Bidv)–Saigon Branch has increased its interest rate in dong depositors by another 0.03–0.05% a month [the interest rate for six-month savings deposit in dong is increased to 0.63% a month and 12 month deposit is 0.68% a month].
Banks said that there is now a big pressure forcing them to increase dong interest rates. In the near future, state-run banks are expected to hike rates as Bidv has done, setting up a higher average deposit interest rate in dong.
Since April 1, the central bank has increased the discount and refinancing interest rates by 0.5%. Only in the first three-months of 2005, the SBV has twice raised the lending interest rates for commercial banks.
According to SBV governor Le Duc Thuy, this guideline is aiming at forcing commercial banks to raise funds from depositors rather than depending on loans and then withdrawing some amount of cash from circulation to curb inflation.
Nonetheless, the bigger pressure has come from outside Vietnam—the US Federal Reserve’s US dollar interest rate hike. In late March, US Federal Reserve once again increased its key rate by another quarter percentage to 2.75% a year.
Nguyen Phuoc Thanh, director of the Bank for Foreign Trade of Vietnam (Vietcombank)–HCM City Branch said that the move by the US Federal Reserve has set up a commercial interest rate of 3% in the world market. Economists forecasted that the US Federal Reserve would continue to increase the rate, by late 2005 possibly to 3.5–4%.
At that time, the average interest rate in US dollar on the world market can climb to 5% a year. Therefore, right this time, Vietcombank HCM City can fix the deposit interest rate in US dollar at 3.5%. However, according to Thanh, the prevailing interest rate in US dollar of 3.1% a year is also creating a big pressure against the rate in dong.
In the past few months, the deposit interest rate in dong has not significantly changed and remains at 7.56% a year whereas the rate in US dollar has increased from 2% to 3.1%. As the US dollar deposit interest rate further increases, the gap between the rates in dong and US dollar is narrowed, which will entice people to deposit in US dollars rather than the dong as currently. That is a big pressure forcing banks to recalculate and set suitable interest rates to maintain dong depositors.
In addition, demand for development investment capital in society will also force banks to accelerate raising deposits.
However, according to banks, the dong deposit interest rate will increase under the control by the central bank to suit the fluctuations of the rate in US dollar in near future.
Bankers advised that at the moment, depositors should deposit short-term savings at banks to wait for probable upward adjustments in the rate in dong in near future.
Category: Finance
