The dollar weakened in Vietnam in recent days due to "abundant" supply after the central bank capped rates payable on deposits in the US currency, the government said Wednesday in a statement.
The State Bank of Vietnam's limits took effect April 13, restricting rates for individuals to 3 percent and those for non-credit institutions to 1 percent. Holdings of dong can earn interest of as much as 14 percent. Some small banks have been taking in some $10 million to $15 million daily from customers in exchange for dong, the government said.
The dong-dollar exchange rate offered by banks have been lower than the daily ceiling set by the central bank, which is "a phenomenon that rarely happens," the statement said. Dollar prices at Asia Commercial Bank were between VND20,670 and VND20,740, while the official ceiling was 20,910 on Tuesday, the government said.
Prime Minister Nguyen Tan Dung has cut the target for credit growth and ordered a tighter monetary policy as the nation strives to rein in inflation and stabilize the local currency, which fell against the dollar in all but one of the last 15 years.
Increased checks and inspections of foreign- currency holdings by the central bank has "also created large pressure on the unofficial dollar market," spurring the flow of dollars into banks, the government said today.
The dong gained 0.3 percent to 20,650 per dollar as of 3:16 p.m. in Hanoi Wednesday, according to prices from banks compiled by Bloomberg. It touched 20,645, the strongest level since Feb. 10.
The central bank fixed the reference rate at 20,698 today, compared with 20,703 yesterday, according to its website. The currency is allowed to trade up to 1 percent on either side of that rate.
While the foreign-currency market has shown signs of stabilizing, the central bank needs to monitor movements in the market closely and continue checks and inspections, the government said in today's statement.