Many companies and individuals have sold their foreign currency to banks, causing the dollar to fall sharply against the dong over the past week, bankers said.
Truong Van Phuoc, general director of Eximbank, said as interest rates on dong deposits are now high and there is little anticipation for another currency devaluation, many companies have decided to sell their dollars.
The State Bank of Vietnam has capped dollar deposit rates at 3 percent for individuals and 1 percent for institutions, effective April 13. Banks can offer a maximum interest rate of 14 percent on dong deposits.
Ly Xuan Hai, general director of Asia Commercial Bank, said many individual clients, on the renewal day of their term dollar deposits, chose to sell the dollars to the bank.
The added supply caused the dollar to fall, he said.
Vietcombank, Vietnam's second-largest partly private lender, on Sunday quoted the US dollar at VND20,830, compared to 20,930 a week ago.
According to the central bank, the interest rate cap on dollar deposits has helped increase supply of the US currency among banks. Banks then had more dollars to sell to their clients over the past week.
In February, Vietnam asked major state-owned companies to sell dollars to banks as part of measures to tighten monetary and fiscal policies and control inflation.
Economist Le Tham Duong said the recent decline in the dollar was a positive signal, showing that new regulations have sucessfully reduced dollar hoarding in the country.
However, he said what's more important was to improve economic conditions by controlling inflation, budget expenditure and the trade deficit.
Consumer prices climbed 17.51 percent in April from a year earlier, according to figures released by the General Statistics Office in Hanoi on Sunday. That compares with the 13.89 percent increase last month.
The country's trade deficit in the first quarter of this year has been calculated at US$3.5 billion.