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Bank rate cut would do little to fix dollar crunch
Vietnam's big banks cutting their dollar deposit rates would have little impact on alleviating a dollar crunch, bankers said on Monday.
Last week the central bank said Vietnam's largest banks would lower interest rates on dollar deposits to 1.5 percent from Monday from around 2 percent previously to avoid dollar hoarding.
"The rate reduction will help untie the bottleneck in foreign exchange lending at present and reduce pressure on the Vietnamese dong," State Bank of Vietnam Governor Nguyen Van Giau was quoted by Monday's Saigon Giai Phong daily as saying. Banks now had robust supplies of dollar that could meet all corporate demand.
But bankers said the 0.5 percentage point cut would not change depositors' mind, and that they wanted to see the central bank do more.
"The rate cut would have a minor impact on the overall situation but the problem can only go away if the central bank sells or puts in place an administrative rule to force the forex sales," a dealer in Hanoi said.
He said residents would need to see central bank action to ensure a stable exchange rate so that they would not need to keep dollars as a hedge against a possible speedy devaluation of the dong.
Last month, bankers said Vietnam was expected to allow a bigger depreciation of the dong in the second half of the year to support exports and help ease a domestic dollar shortage.
The central bank said in May it had considered compulsory sales of foreign currencies as a possible measure to help ease the dollar crunch, but it would hold off at present.
"Vietnam has started seeing trade deficits while foreign investment falls and overseas remittances also drop, so the problem with dollar shortages is long-term," a second dealer said, referring to Vietnam's main sources of foreign exchange.
On May 25, Vietnam estimated its trade deficit in May widened to $1.5 billion from $1.18 billion in April, after monthly surpluses recorded in January to March.
Actual foreign direct investments in Vietnam dropped at an estimated annual rate of 29 percent to $2.8 billion in the first five months of this year, while new pledges plunged nearly 90 percent, the government has said.
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