Vietnamese banks have more than enough funds to cover compulsory reserves after attracting deposits by raising their interest rates following an official rate increase last week, the central bank has said. The State Bank of Vietnam raised its base rate to 14 percent from 12 percent, effective June 11, and banks increased their rates closer to a ceiling of 21 percent on deposits and loans in the Vietnamese dong, up from the 18 percent in effect since May 19.

“The outstanding deposits of banks at the State Bank against their compulsory reserve level is already in surplus,” the central bank said in a market review.

The State Bank of Vietnam requires banks to set aside 11 percent of their deposits of up to 12 months.

It said that it continued offering to buy paper from banks and also lent to small banks to ensure market liquidity.

Partly private Ho Chi Minh City Housing Development Bank said Monday it was offering 18.5 percent for 12-month dong deposits, up from 15.5 percent, while its 12-month dollar deposit rate rose to 8 percent from 7.5 percent.

The bank’s offer is now at the top of the range on the domestic market.

Other Vietnamese banks are offering 12-month dong deposit rates at 17.1 – 17.6 percent.

On the interbank market, major lenders have kept overnight dong loans since June 9 in a wide range of 10 – 17 percent, compared with 10-13 percent in late May.

Foreign banks offered one-year dong loans at up to 21 percent.

The central bank’s review said it would continue intervening in the foreign exchange market to ensure liquidity as Vietnamese importers needed dollars for repayment.

The central bank set the official rate at 16,455 dong per dollar Tuesday.

The dong has now fallen 2.07 percent against the dollar since the end of 2007.

The government’s stated policy is to allow the dong to rise or fall by up to 2 percent against the dollar in the whole of 2008.

Hard to determine where dong is headed

Amid a welter of claims and counterclaims, Credit Suisse Group’s Joseph Lau, a Hong Kong-based economist, has said predicting the future movement of the dong is not a straightforward task in a note to Bloomberg recently.

He said: “The difficulty in making a judgment rests on the lack of quality information. The reality is no one is entirely sure what the situation regarding the balance of payments is, for example.

“They’ve kept the dong undervalued from 2007 until the early part of this year.

From a three-year angle, while the dong is due for a downward correction, it didn’t appreciate as much as it should have done previously.

“So it is questionable to say whether it is particularly undervalued or overvalued.

“Using free market rates or the dong non-deliverable forwards as forecasts for currency is unreliable, as they are not a true indicator of pressure on the currency. All it takes is one crazy order to distort the whole thing.

“The same goes for local sellers on the streets. People who are holding a handful of dollars and trying to make a speculative trade are hardly holding sums which will destabilize the financial system.

“It could still underline a lack of confidence in the currency and the domestic financial system. Vietnamese, when they are uncertain, tend to buy US dollars and hoard gold.

“The uncertainty is being contributed by the lack of information.

“The main cause of the Vietnam problem is it has an overheated economy, by any measure.

Vietstock