The State Bank of Vietnam may slash interest on deposits in U.S. dollars to even below the current rate of zero to continue its de-dollarization drive, particularly after the FED rate hike, the central bank’s governor has said.
On December 17, the SBV abolished the cap on individual dollar deposit rates after the U.S. Federal Reserve raised interest rates for the first time in nearly a decade, but Governor Nguyen Van Binh said more measures will be taken to de-dollarize the economy.
FED raised the range of its benchmark interest rate by a quarter of a percentage point to between 0.25 percent and 0.50 percent, according to Reuters.
“We respect the right to keep foreign currencies of the public and businesses, but when it comes to doing transactions in Vietnam, the dong must be used,” he told Tuoi Tre (Youth) newspaper in an interview published Monday.
“The ultimate goal of [our] de-dollarization plan is that everyone has to withdraw the Vietnamese dong for use, even though they have a legal source of foreign currencies.”
Binh said the measures to be taken with the U.S. dollar will be similar to what the central bank has done to discourage local residents from keeping and using gold in the last few years.
“People used to be able to enjoy an interest rate for their gold savings, but they currently have to pay fees to keep their precious metal at credit institutions,” he said.
“We may do the same with savings in dollars in the coming time,” Binh said.
Prior to the removal of the cap on individual dollar deposit rates, the central bank also scrapped the ceiling for dollar deposits offered by banks to organizations and companies.
“We do not rule out the possibility that a negative interest rate will be applied to both of the deposits,” Binh said.
This means that instead of paying interest to depositors, lenders will charge them for dollar-denominated savings, according to the governor.
The U.S. dollar is currently able to be traded in Vietnam within a band of VND21,233 and VND22,547, following the latest forex rate adjustment by the State Bank of Vietnam in August.
Despite the zero interest rate for dollar deposits, the greenback is still being exchanged near its ceiling, which the SBV governor attributed to ‘psychological factors.’
“The coming measures will all target such factors, and once there is no longer dollar hoarding in the economy, the interest rate for dollar deposits can be increased,” Binh asserted.
The governor added the central bank is taking steps to apply a new management mechanism to the interbank trading band, which determines the official dollar/dong exchange rate.
The trading band for VND-USD transactions is currently set at three percent, which Binh said “still allows dollar speculators to make profits.”
“But in the future we will consider changing the interbank rate frequently, even on a daily basis, so there are risks for those speculating on the foreign currency,” he said.
“The dollar you buy today will bring losses the following day, when the central bank changes the interbank trading rate, so it is more risky for the hoarders.”