Vietnam dong strengthens after dollar deposit rate caps cut

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Vietnam's dong gained against the US dollar on Thursday after the central bank reduced interest rates for dollar deposits to support the local currency. Government bonds rose.

The State Bank of Vietnam lowered the rate cap on dollar deposits by individuals to 2 percent from 3 percent, and cut the limit for institutions to 0.5 percent from 1 percent, it said in a statement posted on its website Thursday, without saying when the change is effective from. The central bank on Wednesday ordered lenders to set aside more dollars as reserves for the second time in less than two months.

"I expect to see mounting selling pressure on the dollar as people will continue to switch from dollar to dong deposits, which should continue to push the dong," said Francois Chavasseau, head of fixed-income research at Sacombank Securities Joint-Stock Co. in Ho Chi Minh City.

The dong rose 0.2 percent to 20,550 per dollar as of 4:53 p.m. Thursday in Hanoi, according to data compiled by Bloomberg. The yields on the benchmark five-year bonds fell five basis points, or 0.05 percentage point, to 12.75 percent, according to a daily fixing from banks compiled by Bloomberg.

The State Bank of Vietnam yesterday increased the reserve- requirement ratio on U.S. dollar deposits by 1 percentage point to a range from 4 percent to 7 percent, effective this month. It has also ordered state-owned firms to sell all the foreign currency they collect to banks from July 1.

The central bank set the reference rate at 20,638 today, unchanged from yesterday, its website showed. The currency is allowed to trade up to 1 percent on either side of the official rate.

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