Binh tips dollar rate to drop

State Bank Governor Nguyen Van Binh told a State Bank six month review meeting in Ho Chi Minh City last week that lowering foreign currency deposit rates aimed to improve the dong’s position, encourage people to keep the local currency and reduce pressures on foreign exchange rates.

This message came after the recent signals that the dong-US dollar exchange rate was tenser. While trade deficit has just seen a mild increase, banks are behind this problem as many have shifted to keeping foreign currencies given difficulties in giving dong loans, stated a State Bank report.

Banks have bought in foreign currencies to improve their short dollar positions 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 would cause impacts to other policies.

According to the report, the demand for foreign currency was not high during the past two months, and the State Bank had a timely action to support the market.

As of June 21, the inter-bank average VND/USD exchange rate stayed at VND20.828. The buying average exchange rate of banks increased about 9 per cent against the early year.

The dollarisation situation continued to be cooler. By the end of May, foreign currency deposits made up 11.82 per cent of total means of payment, down from 12.3 per cent in the end of 2012.

Binh also affirmed that the forex rates would be kept stable this year and the highest increase would not exceed 2 per cent.

Brett Krause, Citibank Vietnam country officer, suggested lowering greenback deposit rates to widen the gap with dong mobilisation rates, ensuring stabilisation of the forex rate.

He said that Vietnam dong interest rates had dropped steadily, while dollar rates stayed unchanged, causing forex market fluctuations. Therefore, dollar deposit rates should decline even to zero per cent from 2 per cent to prevent people from keeping dollars, Krause added.

Tran Phuong Binh, general director of DongA Bank, agreed with lowering dollar deposit rates which may hurt mobilisation capital, forcing banks to borrow from foreign banks to compensate for credits.

Governor Binh said that dollar deposit rate revision would certainly happen but the State Bank still needed more calculation time.