VND may lose 5% of its value this year: Expert

By the end of 2009, the VND may depreciate by 5% or more against the dollar, according to Bui Kien Thanh, Senior Advisor to KHM Inc, General Director of IAMC (International Asset Management Company).

Thanh said that the factor that has direct impacts on the exchange rate is the result of the Government’s second demand stimulus package. If the package brings positive results, the exchange rates will be within control, and if the package just shows a little influence, the exchange rate performance will go the other way.

Currently, the state budget deficit has reportedly reached nearly 5%. If counting on the two demand stimulus packages worth VND 17 trillion and VND 20 trillion (the second has just been announced), the figure would be over 10%, which will certainly affect the exchange rate performance.

Thanh also said that he finds it necessary to remove the basic interest rate scheme and apply the negotiation-based system. He said that the State Bank of Vietnam should provide capital to commercial banks with the interest rates of between only 0.5-1%, so that commercial banks can lend to businesses in all fields between 4-5%, which will help the national economy develop strongly.

Meanwhile, the State Bank of Vietnam has reminded the State Bank of Vietnam to reconsider the basic interest rate to make it more fit to the inflation rate not higher than 6% per annum.

The information has raised worries among banks and depositors, as the lower basic interest rate will mean the lower deposit and lending interest rates.

However, analysts said that depositors should not be too worried, as the deposit interest rates will not decrease sharply despite the basic interest rate reduction.

The analysts said because the deposit interest rates have decreased to low levels from the high levels in 2008. The current rates are 8% for 12 month term deposits, and between 7.1-7.3% per annum for 3-month term deposits.

Commercial banks once could not ‘bend’ the interest rates and make them fit to their wills. When the basic interest rate reduced in February 2009, some banks slashed the deposit interest rates to below 7% per annum (3 month term deposit) and a little over 7% for 12-month term deposits.

However, the banks have to raise the deposit interest rates again since the beginning of March 2009. Low interest rates prove to be unable to attract capital to banks. People are now considering many choices, including securities investments, real estate, and gold. Bank depositing is not the top choice for people as it was in 2008.

VietNamNet, DTCK, LD

>   Commodity prices still quoted in US dollars because of loosened control (10/04/2009)

>   Banks got headaches from SBV’s decision (10/04/2009)

>   Businesses, individuals still hesitate to borrow money (10/04/2009)

>   SBV adds up participators of interest rate support program (09/04/2009)

>   SBV Governor attends ASEAN Central Bank Governors’ and Finance Ministers' Meetings (09/04/2009)

>   No one expects basic interest rate reduction (09/04/2009)

>   SBV guidance on interest rate support for medium and long-term loans (09/04/2009)

>   Dollar surplus as dong loans find more takers (09/04/2009)

>   Gov’t says interest rates should be in line with 6 pct inflation (09/04/2009)

>   Banks banned from opening new gold trading floors (09/04/2009)