The State Bank of Vietnam doesn’t believe it is the right time to increase interest rates on U.S dollar savings, which the country’s central bank has maintained at zero percent over the last two years, a deputy governor said on Tuesday.

The U.S. Federal Reserve has increased its benchmark interest rate three times so far this year, prompting calls on the Vietnamese central bank to issue similar increases.

Since 2015, the central bank has stipulated a zero percent interest rate for savings in U.S. dollars for both individual and corporate clients in order to support its anti-dollarization effort.

As people were no longer able to take profit from U.S. dollar savings, the central bank has been able to keep the foreign exchange rate stable and managed to buy across a large number of foreign currencies to increase its foreign reserves.

Vietnamese bringing dollars overseas?

While local experts acknowledge that the zero interest-rate policy is necessary to de-dollarize the economy, they believe that it only works when FED interest rates are low, according to Nguyen Hoang Minh, deputy director of the Ho Chi Minh City branch of the State Bank of Vietnam.

“Now that there have been three FED interest rate hikes this year and more increases expected for 2018, it is a concern that dollar holders in Vietnam will look to foreign sources to store their assets,” Minh said at a meeting with the central bank on Tuesday.

A woman counts U.S dollars at a bank in Ho Chi Minh City. Photo: Tuoi Tre

Minh also said that many experts have suggested that the central bank increase the U.S. dollar deposit interest rate to encourage people to keep the foreign currency within Vietnam, rather than take to an overseas banking system.

Upon receiving these suggestions, the Ho Chi Minh City branch of the State Bank of Vietnam responded by underlining the positive impacts of the zero interest-rate policy.

Many Vietnamese consumers have exchanged their dollars for the dong and put into bank savings, illustrated by the fact that savings in foreign currencies now account for only 12 percent of total domestic savings, compared to 19-22 percent during the 2010-15 period, Minh elaborated.

Following Minh’s speech, Dao Minh Tu, a deputy governor of the state bank, talked of the other benefits of the policy, such as “strengthening the dong and enabling the central bank to add $8 billion to its foreign reserves.”

Tu acknowledged suggestions to increase the interest rate for savings in U.S. dollars, but underlined that “this is not the right time to do so yet.”