The US Federal Reserve decided to increase the baseline rate for US dollar deposits by another quarter percentage point to 1.75% a year on September 21, 2004 in the purpose of curbing the inflation in the context of the escalation of the energy price and balancing the macroeconomic issues. This is the third time that US Federal Reserve has raised the rate of 1%— the lowest rate unchanged for more than 40 years to 1.75% for only a few months.
Not long after the US Federal Reserve’s rate increases, a number of commercial banks in Vietnam started to inch up rates for greenback deposits. Typically, Vietcombank-HCM City Branch immediately decided to increase its rates by another 0.3–0.6% a year for all terms from September 21. The US dollar deposit interest rate for a one-month term is 1.55% a year, a three-month term is 1.65% a year; a six-month term is 1.8% a year, a nine-month term 2%, a one-year term 2.4%, a two year term 3%, a three year term is 3.1% a year but the call deposit rate remains unchanged at 1% a year. However, Vietcombank-HCM City Branch still maintains the old deposit interest rates of 3.3% a year for a five-year term. This upward movement on the US dollar deposit interest rate by the Vietcombank has commenced to attract an amount of clients withdrawing cash from other banks to deposit at the bank.
After Vietcombank increased rates, Vietnam International Bank (VIB) and Industrial and Commercial Bank of Vietnam (Icbv) did no want to lose their clients and deposits so they also started to make an upward adjustment on the US dollar deposit interest rate. Specifically, VIB increased its interest rate for US dollar deposits by another 0.05–0.3% for all terms. The interest rate for short-term deposits has increased by 0.05% a year. Namely, the interest rate for three-month deposits is increased from 1.60% a year to 1.65% a year, six-month deposits from 1.75% to 1.80% a year. Also, the interest rate for nine month, eighteen month and twenty-four month deposits has risen by 0.1% a year. Accordingly, the interest rate has risen from 1.80% a year to 1.90% a year for nine month deposits, from 2.40% a year to 2.50% a year for 18 month deposits, from 2.50% a year to 2.60% a year for 24 month deposits. Particularly, the interest rate for 12 month deposits increases up by 0.3% per year, from 2.10% to 2.40%. Icbv also fixed a new US dollar deposit interest rate: the interest rate for 12 month deposits is 2.3% per year and for 24 month deposits 2.6%.
Different from Vietcombank, VIB and Icbv, Mekong Housing Development Bank (MHB)-Hanoi branch will also jump in the game and said that in October the bank will apply a preferential interest rates for dong deposits. Post-paid interest rate of non-fixed term deposits is put at 0.2% per month. For six-month deposits, the post-paid interest rate is fixed at 0.6% a month, prepaid interest rate 0.57% a month, and a monthly interest rate 0.58%. For 12-month deposits, the post-paid interest rate is 0.65% a month the prepaid interest rate is 0.59% a month, and a monthly interest rate of 0.6%.
However, many other domestic banks seem not to take heed of these changes. Nam A joint Stock Commercial bank said that the bank would not change the base interest rate for both US dollar and dong deposits in its whole system at present.
Even, Icbv’s upward adjustment to the interest rate for US dollar deposits is hope to only maintain the US dollar deposit market share in Vietnam.
In the local market, although the big jump in the consumer price index (8.6%), the lending and deposit interest rate in dong and greenback on the local monetary market remains stable. Particularly, in the forex market, the forex supply and demand still stable and the forex rate between the US dollar and dong only has changed little and started to return stable. This reflects that the greenback price will hardly increase in the local forex market and the differential in the deposit interest rate between the dong and US dollar will be advantageous to dong holders.