Vietnam interest rates continue to fall

The central bank will also lower the Vietnam dong deposit cap with maturities of less than 6 months to 6 per cent from 7 per cent. Individual deposit accounts in USD were cut 25 basic points to 1 per cent, while the corporate USD deposit rate was held at 0.25 per cent per annum across all tenors. The last time the SBV cut deposit rates was in June 2013.

Responding the latest developments, HSBC said March 17 that it thought SBV would cut the open market operation (OMO) rate to 5 per cent from 5.5 per cent on March 17.

The central bank has eased the refinancing rate for a cumulative 850 basic points since early 2012 to spur credit growth. The government’s credit growth target is 12-14 per cent in 2014.

Since the Tet holidays late January and early February 2014, Vietnam dong liquidity has remained ample, pushing overnight interbank rates down to less than 2 per cent from an average of 4.6 per cent during January.

This has prompted the central bank to issue short term notes to drain excess liquidity, leading to a significant reduction in SBV note yields, according to ANZ.

ANZ said March 17 that they maintained their view that the cuts in USD and Vietnam dong deposit rates are in line with the government’s anti-dollarisation policy.

ANZ added the continued decline in deposit rates would likely support the rally in the local stock market. In its update earlier this month, ANZ took note of the increase in local participation in the stock market as local money sought higher yields. Following news of rate cuts, the Ho Chi Minh Index breached the 600 level for the first time since late 2009. The stock market has gained almost 20 per cent so far this year.