The State Bank of Vietnam has said the recent cuts in the interest rates of US dollar deposits were carefully planned and will not affect the banking system's liquidity.
In an effort to increase the dong's attractiveness, the central bank on Monday reduced ceiling interest rates on US dollar deposits to 0.25 percent a year for personal customers and 0 percent for corporate ones.
Deputy governor Nguyen Thi Hong said with inflation moderating, depositors can benefit from a high real interest rate in the Vietnam dong.
Prior to the cuts, interest rates on personal deposits in the US dollar was 0.75 percent and corporate deposits was 0.25 percent.
Interest rates on Vietnam dong deposits are now set at 4.19-5.2 percent a year, according to the state bank's website.
The dong has dropped by around 5 percent against the US dollar this year. The greenback sold at VND22,430-22,510 on Monday afternoon at local banks.
Hong said the central bank had planned the move long before as part of its efforts to prevent dollarization.
Speaking to Thanh Nien, Truong Van Phuoc, vice chairman of the National Financial Supervisory Commission, dismissed concerns that the central bank's rate cuts will possibly send US dollar deposits away from banks, affecting the sector's liquidity and putting pressure on foreign exchange rates.
Interest rates on US dollar deposits have been reduced since 1992 when they were around 4 percent a year, but the cuts never upset the banking sector, he said.
Hong also confirmed that the liquidity of Vietnamese lenders is currently stable.
Bui Quang Tin, a lecturer with the Banking University of Ho Chi Minh City, also praised the state bank's move, saying that it will prevent dollar speculation, which the state-owned BIDV bank warned about in its August report, following sharp declines in the exchange rate that same month.
The move will also encourage people to sell foreign currencies to banks instead of depositing them, which is good for the foreign exchange market, Tin said.