Vietnam lowered the ceiling on dollar deposit rates on Thursday in its latest attempt to limit the circulation of the US currency in the economy, which is struggling with a widening trade deficit and stubbornly high inflation. The central bank said it cut the dollar deposit rate on bank deposits by individuals to 2 percent from 3 percent offered widely previously.
That ceiling applies to deposits by individuals, while the rate cap for institutional deposits is 0.5 percent, the State Bank of Vietnam said on its website (www.sbv.gov.vn), citing a circular issued on June 1. The move followed two announcements on Wednesday in which the State Bank of Vietnam raised the reserves on foreign currency deposits banks must keep aside and also forced state-owned firms to sell their forex holdings to banks from July.
"If the central bank aims to de-dollarise and have a better forex management system, the set of polices is in the right direction", said Vu Thanh Tu Anh, a Harvard-graduated economist. The actions announced on Wednesday will buttress efforts by the authorities to support the dong, although the Vietnamese currency has been more stable in recent weeks after a devaluation in February.
"These policies widen the interest gap between dong and dollar, making dong more appealing than dollars by higher deposit rate," said Anh, who is Director of Research at Fulbright Economics Teaching Program. "Raising the reserve ratio will make dollar loans more expensive which would encourage lending in dong", Anh said.