A trade surplus in the first quarter of this year has boosted Vietnam's dollar supply but interest rates are expected to firm later this month in line with a recent US rate rise, bankers said Monday.
 
They said the small dong devaluation against the dollar so far this year has contributed to stabilising dollar demand, most of it from importers.

Vietnam, which had a trade deficit almost every month in recent years partly because it relies heavily on oil product imports due to a lack of major refineries, estimated a surplus of nearly US$60 million in the first quarter of 2006.

Exports rose 20.3 percent from a year earlier to $8.57 billion and imports were up 1.9 percent to $8.51 billion, government figures show.

The central bank allowed the Vietnamese dong to ease just 0.32 percent against the dollar in the first quarter after a fall of nearly 1 percent in the whole of 2005.

On Monday, the central bank set the official rate at 15,922 dong per dollar, compared to 15,872 dong on Jan 3, 2006.

The central bank also kept the base rate for dong loans at 8.25 percent, unchanged since December 2005.

Bankers said interest rates should firm later this month, after the US Federal Reserve raised the dollar benchmark rate by a quarter point to 4.75 percent on March 28.

Rate rises began in Vietnam earlier this year, with banks based in Ho Chi Minh City, the commercial centre, increasing yields on deposits in the first quarter.

A central bank report released at the weekend said the rates on dong and dollar deposits offered by Ho Chi Minh City-based banks were 0.36-0.96 of a percentage point above those on Dec. 31.

On March 31, deposits in the banks were up 6.78 percent from Dec. 31 at VND201.7 trillion ($12.7 billion), while loans in the same period edged up 1.2 percent to 178 trillion dong ($11.2 billion), it said.

Bankers said the lunar New Year festival in February had slowed lending because it was a tradition to avoid being in debt at the start of the new year.

Four state-run commercial banks, Vietnam's key lenders, offered overnight dong loans stable at 5.9 percent to 6.0 percent on Monday, against 6.0 percent a week ago.

Source: Reuters