The interest rate ceiling on US dollar deposits was reduced as of September 28, in a move to avoid the hoarding of the dollar in the domestic economy.
Under decision 1938/QD-NHNN, issued by the State bank of Vietnam, the interest rate ceiling on dollar deposits offered by commercial banks to organisations and companies will be cut from 0.25% to zero per cent per year, while the rate for individuals will be reduced from 0.75% to 0.25% per year.
The central bank said deposits made prior to the decision, which took effect from yesterday, would be subject to the previous interest rate regime till the term expires. In cases where the term has expired but depositors have not received the interest, the new rate will be applied.
The SBV said the decision was aimed at preventing any hoarding of foreign currency and will contribute to effective implementation of measures on monetary policy and banking activities in the last few months of 2015.
After the move from the central bank, the domestic foreign exchange market remained unchanged yesterday. Commercial banks yesterday listed the VND/USD buying/selling rate at around VND22,445/22,505, while the rate at the flea market also hovered around VND22,560/22,580.
Deputy Chairman of the National Financial Supervisory Committee Truong Van Phuoc said that the adjustment was part of the Government's itinerary to tackle the "dollarisation" of the domestic economy or the widespread use of the dollar for storing or using it to make payments for goods.
He said that the Government has implemented measures to fight against dollarisation for the past decade and this reduction was only one of the measures.
This reduction, which would increase the gap in the interest rate between the dollar and the dong, was aimed at creating more advantages for the dong against the dollar, Phuoc said.
Experts also forecast that the adjustment would not affect the dollar source at commercial banks.
According to Phuoc, banks can buy more dollars as organisations and individuals who are holding the dollar can turn a part of their dollar deposits to the dong deposits to get higher interest rates. Currently, the interest rate ceiling on dong deposits is 5.5%.
Dinh Duc Quang, deputy director of Orient Commercial Joint Stock Bank (OCB), forecast that current depositors would not withdraw their dollar deposited in banks to invest in other channels as the dollar deposit interest rate for the past years has also remained low.
Quang estimated that this cut would have an insignificant impact on interest of deposits, adding that most of the depositors with large amounts of dollars in banks were not interested much in the interest but only considering their deposits as a method of diversifying their investment.
Quang also said that after the central bank adjusted the exchange rate sharply in August, dollar demands of corporate borrowers have tended to decline in the past 2 to 3 months.
In August, the central bank devalued the dong by 1 per cent and expanded the exchange rate trading band in commercial banks from 1 per cent to 3%.
The central bank also affirmed that it would make no further adjustments to the exchange rate till the end of this year or even in early 2016.
According to the SBV, the current rate is flexible enough to defend against negative fluctuations in the exchange rate in Vietnam and globally.
