Money market rates in Vietnam firmed Monday after the central bank tightened monetary policy further by issuing compulsory dong treasury notes worth US$1.3 billion as it moved to battle soaring inflation.

The State Bank of Vietnam said in a statement it would issue VND20.3 trillion ($1.26 billion) in compulsory treasury bills at a coupon of 7.8 percent effective March 17.

“The decision is aimed at withdrawing money from circulation and actively controlling monetary movements in order to contain inflation,” the bank said in a statement seen on Monday.

The central bank said 41 buyers, including branches of foreign banks such as Bank of Tokyo Mitsubishi, ANZ, Standard Chartered Bank and Deutsche Bank, must buy a combined VND20.3 trillion worth of 364-day Treasury notes.

Although the central bank said the sales of the bills would have minimal impact on banks’ dong liquidity, bankers said banks have rushed to raise dong supply by hiking dong rates.

The latest action from the central bank followed a series of monetary tightening measures including raising its key rates by up to 1.5 percentage points from February 1 - the first increases since December 2005 - in order to control credit growth and inflation.

Vietnam’s economy is growing at nearly 8.5 percent a year and is one of the fastest expanding economies after China but inflation is also soaring with January consumer prices were estimated to jump 14.1 percent from a year earlier.

On Monday, Agribank, Vietcombank and Vietindebank, three of the country’s four biggest lenders, offered overnight loans at 10 percent to 15 percent on the interbank market, from 10 percent last week VNIBOR.

Meanwhile, private and foreign banks offered the loans at between 8 percent and 25 percent, up from a range of 8 to 14 percent last week.

Hanoi-based VPBank said on Monday it had raised its dong deposit rates by up to 1.02 percentage points, making it the bank that paysthe highest interest rates on dong deposits.

Its 12-month dong deposits now yield a record 10.5 percent annually.

“There will be a fierce race among banks to raise dong deposit interest rates to lure customers and raise liquidity,” said a banker in Hanoi.

Source: Reuters