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Exchange rate fluctuates because of rumor about interest rate policy
The rumor about the possible move by the State Bank to raise the ceiling of dong deposit interest rates, has immediately had impacts on the foreign currency market: The dollar price has increased sharply over the last three days.
New interest rate policy?
The breaking news appeared on all securities forums, business websites and official newspapers on May 17 and 18, was the one about the possibility that the State Bank would raise the deposit interest rate ceiling to 15 percent from the current 14 percent per annum.
The news has been reported with quoted reliable sources, thus making investors half-believe. Meanwhile, the State Bank of Vietnam did not release any information during those days.
On May 17, a business website wrote that Reuters has quoted an official of the State Bank as saying “that the State Bank has decided to raise the refinancing interest rate from 14 percent to 15 percent.”
Also, another newspaper wrote that in the afternoon of May 17, the State Bank decided to raise the ceiling dong deposit interest rate from 14 percent to 15 percent.
However, when reporters contacted the State Bank on May 18 to clarify the issue, they realized that the refinancing and deposit interest rates ceiling remain unchanged.
However, the information people want to know is not the one about what had happened until May 18, but what will happen in the future.
People have every reason to think that the State Bank would raise the dong deposit interest rate ceiling. Prior to that, many economists have voiced their worry about the liquidity problem of banks.
Le Xuan Nghia, Deputy Chair of the National Finance Supervision Council, said that the ceiling of 14 percent per annum, deposit interest rate proves to be “unfeasible”. Most of commercial banks have been offering higher-than-allowed interest rates, at 17 or 18 percent per annum, in order to attract more capital to the banks.
Rumor guides the foreign currency market
The dollar prices quoted by commercial banks have unexpectedly increased sharply over the last three days, when there has been a widespread rumor that the State Bank would raise the dong deposit interest rate ceiling and set a cap on the lending interest rate.
Vietcombank quoted the dong/dollar exchange rate at 20,520-20,620 dong per dollar late last week, while the rate soared to 20,610-20,690 dong per dollar on May 16. After the three days of fluctuations, the exchange rate applied by the bank which has the biggest foreign currency trading volume in the market has increased by 180-230 dong per dollar, to the highest peak since April 21.
The same move has also been made by many other commercial banks, which has surprised many people. They could not imagine that the dollar price would rise again one day after the price has been on the decrease over the last one. The interbank exchange rate announced by the State Bank has dropped from 20,733 dong per dollar on April 18, to 20,673 dong per dollar on May 18.
Rumor has it that the State Bank is considering making two decisions: 1) raising the ceiling deposit interest rates or floating the deposit interest rates and 2) setting a cap on the lending interest rates at 18 or 19 percent.
Experts have warned that the changes in the interest rate policy would put difficulties for the exchange rate stabilization efforts. Once the dong interest rates do not increase as expected, the profits from Vietnam dong would decrease, which would prompt people to keep dollar again.
vietnamnet, VnExpress, TBKTVN
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