Vietnam dong hits record low as state bank to lower deposit cap

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Vietnam's dong reached its weakest level since at least June 1993 on speculation investors bought dollars after the central bank announced it will lower the interest-rate cap on deposits. Government bonds gained.

The State Bank of Vietnam will cut the dong deposit rate to 9 percent from 11 percent effective June 11, Governor Nguyen Van Binh told the National Assembly yesterday.

Policy makers announced in a statement Friday that they will reduce the discount rate to 9 percent from 10 percent on June 11 and lower the refinance rate to 11 percent from 12 percent.

"Now that the SBV has lowered the deposit cap, there's not as much incentive as before to put your savings into dong," said Vu Thanh Tu, head of research at Viet Capital Securities Co. in Ho Chi Minh City. Seasonal second-half demand for dollars from importers may sustain the pressure on the dong, he added.

The local currency fell as much as 1.1 percent to 21,235 per dollar, before trading unchanged at 20,998 as of 4:22 p.m. in Hanoi on Friday, according to data compiled by Bloomberg. The central bank set the reference rate at 20,828, unchanged since Dec. 26, its website showed. The currency is allowed to trade up to 1 percent on either side of the official rate.

In June, policy makers cut the rate cap on dollar deposits for individuals to 2 percent from 3 percent, and lowered the limit for institutions to 0.5 percent from 1 percent.

The dong declined 7.4 percent against the dollar last year, including a devaluation of about 7 percent in February. Vietnam will weaken the currency as much as 3 percent in 2012, Governor Binh said Jan. 11.

Yields on five-year bonds fell one basis point, or 0.01 percentage point, to 9.46 percent, the lowest level since June 2009, according to a daily fixing from banks compiled by Bloomberg. Yields have fallen 15 basis points this week, the biggest drop since the period ended May 11.

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