After the State Bank of Vietnam’s decision to cut the interest rate on the USD deposits to zero percent for organizations and to 0.25 percent for individuals as of September 28, many banks said that their customers have started to shift to Vietnamese dong.
At Nam A Bank, Mrs. Ha Nguyen said that her USD deposit of US$8,000 had matured on September 29 but she would still renew her USD deposit though USD deposit interest rate is only 0.25 percent per annum now. According to Mrs. Nguyen, this amount of money is for travelling so she has no intention to convert it into Vietnamese dong.
Meanwhile, Mr. Phan An said that he would transfer his $US 40,000 deposit, which will be used for his kid’s study in the US in the next two years, into Vietnamese dong in order to benefit higher interest rate of 7 percent per annum as the current USD deposit interest rate was adjusted too low.
He said that the US dollar exchange rate would increase in the future but the rate had rose by 5 percent this year. Therefore, if the US dollar exchange rate rises, it will not be able to equal the difference of more than 6 percent between the interest rate on USD and VND deposits.
Mr. Nguyen Hoang Minh, deputy director of the State Bank of Vietnam – Ho Chi Minh City Branch, on September 29 said that not only individual customers converted US dollar into Vietnamese dong to receive beneficial interest rates but also organization customers did the same way. The amount of US dollar bought by banks on September 28 alone was about 2.7 times higher than previous days whereas the amount of US dollar sold merely accounted for 60 percent of that in previous days. Of which, dollars were bought in order to serve payment demand of businesses.
Meanwhile, Eximbank said that low USD deposit interest rate has not significantly affected the transfer of USD deposits to VND ones.
Economic experts said that the decision to reduce the interest rate on the US deposit was in the central bank’s calculation against dollarization. Because it will help to lessen speculation on the US dollar and stabilize the Vietnamese dong.
According to Mr. Minh, in the first nine months of this year, USD deposits at HCMC-based banks hit VND74.8 trillion, up 17.4 percent compared to that in the beginning of this year, accounted for 9.42 percent of total deposits, three times higher than that in the same period last year. the rate of US dollar in total current accounts also rose by 8.24 percent compared to the beginning of this year to VND160.15 trillion.
Especially in the past three months, current accounts in US dollar suddenly soared. In August alone when the central bank raised the US dollar exchange rate, current accounts in US dollar of individuals surged 5 percent over the previous month and that of enterprises also climbed 9 percent. Meanwhile, in the first six months, US dollar mobilization increased averagely 0.4-0.5 percent per month and highest growth was 0.7 percent per month for both saving and current accounts.
It shows that there was speculation on the US dollar with the hope that US dollar exchange rate would increase in the future. However, the move will urge individuals and organizations to sell dollars heavily to switch to Vietnamese dong or to other investment channels, helping to ease dollar speculation.
Mr. Minh also said that this is a chance to lower lending interest rates as banks will have many advantages to mobilize Vietnamese dong.