New interest rate cap good enough for depositors, central bank says

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The central bank says that even after the latest cut of two percentage points, the maximum interest rate on dong deposits is enough to ensure profit for depositors as inflation eases.

The monetary authority has lowered its rate cap on dong deposits to 9 percent from June 11, based on forecasts that inflation will slow down to 7 and 8 percent, said Le Minh Hung, deputy governor of the central bank.

He said now that liquidity of commercial banks has improved significantly, the previous deposit ceiling of 11 percent was too high.

With interest rates on dollar deposits at only 2 percent and the foreign exchange rate remaining stable, "keeping dong deposits is still the best option," Hung said.

The reduction deposit rate cut has come sooner than expected. The central bank said earlier that it planned to cut the ceiling to 9 percent by the end of the year.

For long-term deposits of more than 12 months, the central bank has allowed commercial banks to negotiate interest rates with their clients.

Nguyen Thi Hong, the central bank's monetary policy director, said the next step will be to eliminate the deposit cap completely.

Dao Minh Tu, another central bank deputy governor, said despite the policy to free long-term deposits from a rate cap, it is unlikely that banks will push rates too high to compete with each other given that they have ample funds and interbank rates are low at present.

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