Vietnam & World Forex Market News

US$ interest rates have been on the decrease. Meanwhile, the Ministry of Finance is going to issue government bonds in foreign currencies under the decision by the Prime Minister.

The 3-month term US$ deposit interest rate has dropped to 2.2-2.25% per annum, while the interest rates for VND deposits of the same term is 7.2-7.4% per annum. Bankers say that the US$ interest rate will drop further if outlets for the US$ capital cannot be improved.

US$ capital disregarded

Bankers have to slash US$ deposit interest rates as they found that US$ deposits seem to be increasing, while the demand for US$ loans has decreased. US$ deposits increased by 2.3% in January 2008, and by 1.13% over the end of last year. Meanwhile, US$ loans decreased by 2.7% from February 2009 over the end of last year.

Bankers say that while outlets prove to be very narrow for US$ loans, banks cannot deposit dollars at foreign banks, which they always did before when their capital was in excess. This is because US$ interest rates are closer to 0%.

Experts believe that the demand for US$ will stay low in the time to come, as the VND 4% interest rate subsidy programme will last until the end of 2009. Businesses prefer VND loans with preferential interest rates rather than US$ loans because they fear exchange rate fluctuations.

Bonds will stimulate interest rates?

The government has decided to issue government bonds in foreign currencies, while the Ministry of Finance is preparing for the issuance.

Bankers say that the bond issuance is ‘killing two birds with one stone’. First, the issuance will help the government mobilise a big sum of capital for the budget. Second, the low interest rate will help the government cut down capital costs.

Experts do not think that the bond issuance will help raise the US$ interest rate on the market. An expert said that the bond interest rate may be lower than the deposit interest rates offered by banks.

Moreover, when issuing bonds, the Ministry of Finance will use techniques to avoid interest rate fluctuations. It is likely that the ministry, in the immediate time, will only mobilise capital from bankers in order to enjoy low interest rates as banks now have capital in excess.

Bonds to help stabilise exchange rates

Bankers believe that the bond issuance will help stabilise the exchange rate. The Ministry of Finance, after mobilising the capital in foreign currencies, will sell dollars when necessary, while the central bank will buy them to increase foreign currency reserves. When necessary, the central bank can sell foreign currencies to commercial banks to intervene in the market and stabilise exchange rates.