With inflation reaching 17.5 per cent in the year to April, Vietnam’s central bank has again raised interest rates: one lending rate, the reverse repo rate, was raised today by a percentage point to stand at 14 per cent.

Two other rates, the refinancing and discount rates, were both raised by a percentage point on Friday, to stand at 14 and 13 per cent, respectively. Vietnamese authorities have raised several rates multiple times since the start of the year, which have also seen substantial devaluations of the country’s currency, the dong. Read more

The State Bank of Vietnam has raised two key rates by a full percentage point – a significant increase but still a slower pace than very large rate raises in February and March. The most recent move affects the refinancing and repurchase rates, taking both to 13 per cent.

The move comes less than a month after a five percentage point increase in the discount rate. In February, when the central bank added to inflationary pressure with a 9.3 per cent devaluation of the dong. Since then, the central bank has raised the refinancing rate by 2 percentage points and raised the reverse repo rate by a percentage point. Read more

In an effort to tame inflation, Vietnam has increased both the refinancing and discount rates to 12 per cent. This is a huge increase of 5 percentage points for the discount rate, which was last raised from 6 to 7 per cent in November of last year. (Note: The chart, right, shows only the refinancing rate, which has been raised by a still-large 1 percentage point.) The statement made no mention of the base rate, which has been used as the benchmark and which appears to remain at 9 per cent.

The move comes hot on the heels of a raft of tightening measures last month, including a 2 percentage point rate rise in the refinancing rate and a 1 percentage point rise in the reverse repo rateRead more

Hot on the heels of a strong devaluation and a raise in the refinancing rate to 11 per cent, Vietnam has increased its reverse repo rate 1 percentage point to 12 per cent. No word yet on the base and discount rates, both last raised in November; they stand at 9 and 7 per cent, respectively.

Raising borrowing rates in Vietnam is an attempt to curb inflation, which will have been encouraged by the devaluation. Prices rose by 12.3 per cent in the year to February, following a 12.2 per cent rise to January, against a target of 7 per cent. Weakening the dong will make imports more expensive, which in the case of goods such as energy will work to push up dong-denominated prices generally.

Following a significant devaluation of the dong, the State Bank of Vietnam has just raised its refinancing rate two percentage points to 11 per cent, effective immediately. The Bank has also raised its overnight to 11 per cent:

- The refinancing interest rate is 11% p.a., and Read more

The Vietnamese central bank has devalued its currency by about 9.3 per cent, the third devaluation of the dong in a year and the sharpest since at least 1993. Despite high inflation, the State Bank of Vietnam fixed the currency’s reference rate at 20,693 per dollar today versus 18,932 yesterday.

The move is an attempt to address the gap between official and black market exchange rates, which was roughly 8.5 per cent yesterday. A weaker dong will also help exporters and should address the country’s trade deficit.

But the devaluation could be disastrous for inflation, already high at 12.2 per cent last month. The target is 7 per cent. The move suggests the bank is prioritising growth over inflation, which is supported by recent comments from the government. “One of our top priorities now is to stabilize the macro economy in order to maintain the pace of growth,” Bloomberg quotes Nguyen Van Thao, deputy chief administrator of the ruling Vietnamese Communist Party’s Central Committee, saying on January 19. Read more

Bank rates in Viet Nam have risen from 14 to 18 per cent in a few days, prompting the central bank to set up an investigation, and order banks to apply “reasonable interest rates”. Since then two key banks,  Techcombank and Seabank, have cut their rates to about 14 per cent.

In what appears to be a bidding war for depositors, banks run the risk of destabilising the economy. There are reports of people queueing to withdraw their savings so they can reinvest at higher rates. Some state banks have warned that they will have to take “necessary measures to retain clients” if the rate war were to begin again.

Savers need high rates to compensate for high inflation. An official from the State Bank of VietNam said depositor rates would need to be about 13 per cent. But borrowers have more to lose in the immediate future: consumers and businesses might find themselves unable to refinance, leading to a cash crunch in the broader economy.

Bank rates started rising after Read more

One US dollar will be worth 18,932 Vietnamese dong tomorrow, up from 18,544 since February. This 2.1 per cent devaluation is the third since November of last year. The move will help exports in a country recently downgraded by Fitch.

Recent dong devaluations:
(1) November 2009 (16,992->17,941, 3.4 per cent);
(2) February 2010 (17,941->18,544, 5.6 per cent).

Barclays Capital has rejected as “unjustified” the negative watch placed on Vietnam’s sovereign rating last week by Fitch. Bloomberg reports regional economist Prakriti Sofat as saying in a note: “The Fitch rating outlook change to negative is hasty and short-sighted.” She adds: “When the State Bank of Vietnam devalued the dong in early February, spot Vietnamese dong did not immediately jump to the top end of the new band, as was the case in previous devaluations, which suggests underlying pressures were not that stretched.”

Fitch placed their long-term local and foreign currency issue rating of BB- on negative watch, meaning that, with no further change, a downgrade would be imminent. The ratings agency cited a deterioration in confidence in the Vietnamese dong and a lack of financial transparency among its concerns.

Vietnam’s central bank said on Wednesday it was devaluing the dong’s mid-point reference rate by more than 3 per cent to 18,544 per dollar from 17,941 effective on Thursday. The move was designed to help balance supply and demand of foreign exchange, increase the liquidity of foreign exchange in the market and contribute to controling the trade deficit and stabilising the macroeconomy, the bank told Reuters.

Vietnam devalued the dong by more than 5 per cent in November of last year.

Vietnam’s central bank has asked the country’s largest bank by assets to slow loan growth in general, but to increase rural lending. The Chinese recently made the same requests of several Chinese banks (1, 2).

The State Bank of Vietnam has asked unlisted Agribank to limit loans this year to 20 per cent, after their loan book grew 24.4 per cent last year. Agribank should also increase its proportion of rural loans to at least 75 per cent in 2010, from 68.3 per cent last year, governor Nguyen Van Giau was quoted as telling the lender at its annual meeting last Friday. Read more

Just as China raises its reserve ratio for banks, Vietnam has lowered theirs. The State Bank of Vietnam has lowered the mandatory reserve ratio from 7 to 4 per cent for deposits of less than a year, and from 3 to 2 per cent for longer deposits. (China raised its ratio from 5 to 5.5 per cent, effective today.) The Vietnamese change will be effective from February.

The change suggests increased confidence and risk appetite by the Vietnamese central bank, as banks will have a smaller capital buffer in difficult times. The extra cash at banks’ disposal will permit greater lending. The new ratios will not apply to the Bank for Agriculture and Rural Development, Vietnam’s largest bank by assets, for which ratios of 3 and 1 per cent will apply instead.

Now there’s a refreshing approach. The Vietnamese central bank has denied a plan to bail out banks following rumours of a liquidity crisis in the sector. “The central bank is pursuing a stable monetary policy and trying to curb credit growth. No money pumping. No higher interest rates,” said governor Nguyen Van Giau. Commercial banks recently increased deposit rates in an effort to attract more capital, leading to rumours that the central bank would inject as much as 20,000bn dong ($1.05bn). Read more