Dong Weakens as Falling Local-Currency Deposit Rates Sap Demand

September 27, 2011



Dong Weakens as Falling Local-Currency Deposit Rates Sap Demand



Vietnam’s dong weakened on speculation a decline in dong deposit rates at banks boosted demand for gold and dollars. Government bonds fell.


Interest rates have dropped, with deposit rates currently at 14 percent to 15 percent, the central bank said in a statement on its website today. Earlier this month, the State Bank of Vietnam requested that banks scrap bonus rates in order to enforce its 14 percent interest-rate cap on dong deposits. Rates were as high as 19 percent for deposits of about 500 million dong ($24,000), Dau Tu newspaper reported on July 29.


“Falling dong deposit rates have encouraged people to shift from holding the local currency to holding dollars and gold,” said Doan Thi Thu Hoai, a senior economist at Viet Capital Securities Joint-Stock Co. in Ho Chi Minh City. “Recently, Vietnamese citizens have been willing to buy gold even when domestic prices are 3 million to 4 million dong per tael higher than international prices.” A tael is about 1.2 ounces.


The dong fell 0.1 percent to 20,832 per dollar as of 4 p.m. in Hanoi, according to data compiled by Bloomberg. The central bank set the currency’s reference rate at 20,628 today, unchanged since Aug. 24, according to its website. The local currency is allowed to trade up to 1 percent on either side of the fixing.


The gap between domestic and international gold prices is “at a high level,” the central bank said a statement yesterday. “Citizens should be cautious to avoid” price manipulation by gold speculators, it said.


The yield on Vietnam’s five-year bonds climbed two basis points, or 0.02 percentage point, to 12.44 percent, according to a daily fixing price from banks compiled by Bloomberg. (Bloomberg)



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