Speaking at SBV’s six-month review meeting in HCMC on Wednesday, Binh said lower foreign currency deposit rates aim to improve Vietnam dong’s position and encourage people to keep the local currency. This move will help reduce pressure on foreign exchange rates and stabilize the currency market.

This is a new orientation after the dong-U.S. dollar exchange rate has seen signals of tension in recent times. While trade deficit has seen just a mild increase, banks are behind this problem as many of them have shifted to keeping foreign currencies given difficulties in giving dong loans, Binh said.

Banks have bought in foreign currencies to improve their short dollar position or to gain some profits given a predictable higher exchange rate in the future. However, Binh said banks should be cautious because increasing foreign currency reserves in banks will cause impacts to other policies.

Meanwhile, forex rates will be kept stable from now to the end of this year and the strongest rise will be no higher than 2%, the governor said.

Brett Krause, general director of Citibank Vietnam, said that the central bank might have provided information for the market given problems of the forex market over the past two weeks.

Krause also suggested lowering greenback deposit rates to widen the gap with dong mobilization rates, ensuring stabilization of the forex rate.

Dong interest rates have dropped steadily over the past time while dollar rates stay unchanged, causing fluctuations on the forex market. Therefore, dollar deposit rates should decline even to 0% to prevent people from keeping dollars and help raise dong value, Krause added.

Tran Phuong Binh, general director of DongA Bank, said that lower greenback deposit rates may hurt mobilization capital, forcing banks to borrow from foreign banks to compensate for credits. Therefore, the central bank should have solutions for this problem before lowering dollar deposit rates.

Governor Binh said that dollar deposit rate revision will certainly happen but SBV still needs more calculation to decide time and the extent for this revision. In the long term, the central bank will manage foreign currencies by shifting from lend-borrow to buy-sell relationship. SBV will try to fight dollarization and improve dong attractiveness through its regulation tools.

Meanwhile, dong deposit rates will only drop slightly. The current mobilization rates are suitable for banks to re-calculate lending rates. Short-term lending rates of 8-9% per annum are suitable while long-term rates should be lower than 12% per annum, Binh said.

Binh at the meeting also said that local banks have recorded credit growth of around 3% in the first six months.

However, this year’s credit growth must be at 12% to help speed up economic development. Besides, the central bank’s policies will be determined to stabilize forex rate, establish Vietnam Asset Management Company (VAMC), better management of the gold market and continue with banking system restructuring in the near future.

Source: VietnamNet.