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Central bank caps interest rate on dollar deposits

The State Bank of Vietnam on Saturday announced a new cap on dollar deposit rates in an effort to restore stability in the monetary market.

Starting April 13, the ceiling for interest rates on dollar deposits will be 3 percent, the central bank said. For institutional and corporate clients, the cap will be just 1 percent.

The central bank said banks in Vietnam are offering to pay individual clients an average 4.5 percent a year on dollar deposits, much higher than the rates in regional countries.

The new cap is necessary to bring local and international rates closer to each other and to stabilize the currency market, the bank said, noting that higher dollar rates put upward pressure on dong rates.

In a separate move, the State Bank of Vietnam has decided to tighten controls over dollar holdings by banks, requiring them keep more reserves against their foreign currency deposits from May.

The reserve ratio for non-term or less-than-12-month deposits will be raised to 6 percent from 4 percent while the ratio on deposits of more than 12 months will double to 4 percent.

According to a central bank statement, the adjustment in the reserve ratio will help control credit growth. It said foreign-currency loans expanded at a fast pace 13 percent in the first quarter.