State Bank to increase compulsory reserve ratio on foreign currency

The State Bank announced on April 9 of its decision to increase the compulsory reserve ratio on foreign currency to 2% and to apply a ceiling on the deposit rate of dollar to 3% per year.

File photo show a trannaction at a branch of Asia Commercial Bank in Ho Chi Minh City.

The ceiling interest rate for USD at 3% per year will take effect from April 13.

A representative from the State Bank stated that the dollar interest rate is currently at 4.65% per year and the lending interest rate at 6.83%, higher than the dollar interest rate in the international market. He added that this decision might help to stabilize the foreign currency market and attract more foreign currency from overseas.

Meanwhile, the increased compulsory reserve ratio on foreign currency will take effect from May 2011.

According to economic experts, the increase in the compulsory reserve ratio on foreign currency deposits is believed to help ease the foreign currency speculation  and dollarization and make the financial market healthier.

Under the current regulations, the compulsory reserve ratio on demand deposits and deposits with fixed terms of less than 12 months is 4% of the total deposit. The ratio is 2% on deposits with fixed terms of longer than 12 months.

The increase in the compulsory reserve ratio will force banks to consider lowering deposit interest rates and raise lending interest rates to offset the higher capital mobilization costs.

Once the deposit interest rates decrease, people will find the interest they get from deposits unattractive. Therefore, they will make deposits in Vietnamese Dong instead of foreign currency.

By B.Minh, H.Ni – Translated by Son Hai

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