Banks told to increase dollar reserves

The State Bank of Viet Nam increased the compulsory reserve ratio for foreign currency deposits held by commercial banks to 6 per cent on Saturday, an increase of two percentage points, effective on Wednesday. The ratio was set at 5 per cent for Agribank, the Central People's Credit Union and co-operative banks.

The State Bank also capped interest rates that commercial banks can pay on US dollar deposits at 3 per cent per year.

"This is a dual move to cool down the overheated market in US dollars and to raise the value of the Vietnamese dong," said Nguyen Van Khanh, head of the investment section for a HCM City-based brokerage, who predicted the change would have a positive impact on the nation's stock markets in the coming week, as investors switch to higher yield investments.

A customer changes currency at the Viet Nam International Bank headquarters in Ha Noi. The State Bank of Viet Nam increased the compulsory reserve ratio for foreign currency deposits held by commercial banks to 6 per cent on Saturday, an increase of two percentage points

Viet Nam Association of Finance Investors general secretary Nguyen Hoang Hai said the new deposit interest ceiling would help end recent speculation in US dollars.

In a separate letter issued on Friday, the State Bank also ordered strengthened inspections of gold traders and foreign exchange services in a bid to stabilise the foreign exchange market and ferret out unlawful forex activities. Currency traders found in violation of regulations would be subject to permanent licence revocation.

The State Bank letter was issued in response to signs that illegal currency trading had picked up again after slowing in recent weeks following February's devaluation of the dong.

Government efforts to cool down the foreign exchange market seemed to be paying off, commented Phan Thi Thanh Binh, co-head of ANZ Bank's Global Markets Viet Nam, with the devalution narrowing the previously wide gap between the official and black market forex rates.

"However, the pressure on the exchange rate will continue to be high due to other factors," Binh said.

The trade deficit, which topped $3 billion in the first quarter, would remain high due to high levels of machinery and equipment imports, as well as imports of fuel, feedstock and raw materials.

VNA

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