Dong gains on c.bank tightening measures
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The Vietnamese dong has risen against the U.S. dollar in the past week due to tighter liquidity as the central bank moved to control inflation and enforce banking rules, bankers said on Monday.
The dong was quoted at 21,520/21,620 per dollar on the unofficial market on Monday, about 2 percent stronger than quotes of 21,950/22,020 last Monday. On the interbank market, the dong rose to 20,765/20,895 per dollar at 0355 GMT from 20,875/20,880 a week ago, Reuters data showed.
Last Thursday the State Bank of Vietnam formalized a ceiling for dong deposit rates, saying foreign banks based in the country could only pay a maximum 14 percent, in line with a level agreed among domestic banks last December.
The State Bank of Vietnam followed the directive by issuing warnings on Friday to two domestic banks, saying they violated the agreement by offering deposit rates of between 15.7 and 17.8 percent. It requested that the two lenders punish the branches that were in violation.
"The implementation by banks of the central bank's rule has tightened dong liquidity, prompting them to sell dollars for dong," a dealer at a Vietnamese bank in Ho Chi Minh City said.
Vietnam devalued the dong last month, raised two key interest rates and promised fiscal discipline as part of measures to stabilize the economy and contain inflation, which hit a two-year high of 12.31 percent in February.
The central bank also planned to amend a rule on lending in foreign currencies, requiring corporate borrowers to prove they had dollars from legal sources for repayment, Monday's official Tuoi Tre daily quoted a central bank official as saying.
In addition, banks can extend dollar loans only on condition that they collect the debt in dollars and also ensure that the funds are only used to import essential goods, Nguyen Hoang Minh, deputy head of the central bank branch in Ho Chi Minh City, told the Dau Tu newspaper.
"In the long run, Vietnam needs to tackle its chronic problem with the trade deficit," another banker said.
Dollar loans in Ho Chi Minh City surged 79 percent in the first two months of this year from a year before to US$9.5 billion, Dau Tu cited data from the city's statistics office as showing.
