Several experts have suggested raising the US dollar deposit rates, which are currently pegged at zero percent, in order to attract domestic savers.
Experts want to raise US dollar deposit rates
The prime minister has just given approval to the plan to repay national debts. This year, the government will borrow USD20bn and spend USD12bn on paying maturing bonds and loans. The Ministry of Finance was asked to review a policy to raise VND17trn (USD772.7m) via domestic and foreign government bonds. The government needs foreign currency and issuing foreign bonds is a way to go. However, according to economists, the current situation is different from last year, when Vietcombank bought USD1bn in bonds.
In early June the State Bank of Vietnam allowed commercial banks to provide short-term loans in foreign currency for export firms. This has resulted in huge demand and forced banks to call for more deposits in foreign currency.
But the deposit interest rate for USD was previously lowered to zero to minimise the dollarisation of the economy which made everything more difficult. Some banks have had to find loopholes to have more domestic deposits or borrowed from abroad. Meanwhile the public are happy to hoard huge amounts of foreign currency.
Economists suggested raising the USD deposit rates.
Tran Du Lich, a member of the National Monetary policy Consultancy Council, said trying to minimise the dollarisation of the economy is right but it the policy would need to be changed due to changes in the situation. Lich said the zero interest rate on dollar deposits just meant people weren’t saving money via the official banking system. "If our policies are to attract huge remittances to Vietnam then people must be able to earn interest on the dollar somehow. This is not a simple problem and we need to consider raising the USD deposit rates," he said.
Nguyen Duc Huong, vice chairman of Lien Viet Post Bank, said the banks could apply a small interest rate such as 0.5% a year for six-month terms or longer to attract deposits.
Huong went on to say that the currency exchange might be affected a little but nothing big to worry about as long as there was a good difference between the VND and USD deposit rates. Moreover, Vietnam’s exchange rate management mechanism needed to become increasingly flexible.
