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Investor group urges cap on deposits
The central bank should cap interest rates paid by commercial banks on foreign currency deposits at less than 1 per cent per year, says the Viet Nam Association of Financial Investors (VAFI).
In a statement submitted to the Government, the State Bank of Viet Nam and the National Financial Supervisory Committee on Thursday, VAFI said commercial banks have been offering extremely high deposit interest rates on foreign currency, including interest averaging around 5 per cent per year for US dollars, while global rates stand close to zero.
The high rates have caused individuals and businesses to hold onto US dollars or speculate, thereby reducing the supply of dollars available for international payments.
Back in February, the State Bank issued a regulation capping interest paid by economic organisations at no more than 1 per cent per year. However, the regulation was unable to prevent speculation and keep dollars out of the hands of individual speculators who controlled a significant amount of the currency.
A number of investors have suggested a policy of 0-per cent interest on foreign currency deposits, or that a progressive tax rate be applied on US dollars deposited in commercial banks that would help bridge the yawning gap between interest paid on Vietnamese dong deposits and that paid on US dollar accounts.
As a result, citizens would be encouraged to save more dong than dollars, allowing more dollars to flow into productive business uses, said VAFI.
"If more speculators and individuals who are holding onto US dollars sell the currency, the actual forex rate would be closer to the rate announced by the central bank," the VAFI statement said.
"If the forex market remains tense after implementing these solutions, the State Bank of Viet Nam should be flexible in increasing the prime interest rate in the short run to reduce demand of dollars for imports while easing inflationary pressures," the statement said, anticipating yesterday's move by the State Bank to hike the prime rate by a percentage point for the first time in 11 months.
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