They also agreed to raise the rate for deposits for less than six months from 10.5 percent to 11.5 percent a year.

In February, the State Bank of Vietnam (SBV) had asked commercial banks to keep deposit rates at no more than 12 percent.

Deposit rate cap may be lifted

Vietnam could ease its restrictions on banks’ ability to raise the interest rates over the next few months, despite steep inflation, to help relieve pressure on smaller lenders.

Major banks kept overnight dong loan rates between 5 percent and 10 percent Tuesday, unchanged from a week ago but wider than the range of 4 percent to 7 percent at the end of March.

“Lending rates on the interbank market remain high, which may suggest that liquidity would worsen,” said economist Tong Minh Tuan at the Research & Advisory Department of IPA Investments.

The banks could be allowed to set their own rates from July, a central bank official said.

“The central bank could maintain the current ceiling on deposit interest rates for the next couple of months and would remove it after June,” said Le Xuan Nghia, head of the Banking Development Strategy Department at the State Bank of Vietnam (SBV).

The SBV has carried out various measures to tighten monetary conditions as inflationary pressures have increased.

These included boosting official interest rates and raising compulsory reserve levels for banks.

Keeping the ceiling in place beyond July would make it difficult for smaller banks to raise funds and tighten their liquidity, which may prompt the need for a central bank rescue, Nghia said in a weekend report on the government’s Web site (www.chinhphu.vn).

Annual inflation in April jumped to 21.42 percent, the sixth consecutive month of double-digit inflation.

Monthly inflation data is not fully available but the latest level could be the highest since 1991, when Vietnam reported an annual inflation rate of 67.5 percent.

Some economists suggested price changes between months showed signs that price pressures were easing.

Monthly inflation dropped below 3 percent in April and March from more than 3 percent in January and February.

However, the data is not seasonally adjusted.

Commercial banks raised dong deposit rates to 14 percent a year in February to avoid tight liquidity as the central bank tightened monetary policy.

But the central bank intervened by imposing a cap of 12 percent a year on February 26.

Banks then cut the ceiling to 11 percent from April 2, a decision mediated by the Vietnam Bank Association.

A central bank statement issued last Friday said apart from injecting cash via open market operations, the central bank would step up lending especially to smaller banks.

But banks liquidity in Vietnam’s commercial center of Ho Chi Minh City appears more comfortable.

They reported a surplus in their funds after the pace of lending in the first four months of this year was slower than the buildup in deposits.

Banks raised an estimated VND528.25 trillion (US$33 billion) in deposits, up 56.8 percent from a year earlier, and lent VND477.8 trillion, industry figures show.

In the currency market, the central bank cut the interbank dong value to VND15,967 a dollar Tuesday, compared with 15,964 Monday.

Source: Reuters, TN