Vietnam's central bank said late on Thursday it was abolishing a ceiling for interest rates on dollar deposits that banks offer to individuals, in an attempt to "avoid dollar hoarding".
The move came hours after the U.S. Federal Reserve raised interest rates for the first time in nearly a decade and less than three months after Vietnam cut the individual dollar deposit rate to 0.25 percent from 0.75 percent.
The change will go into effect on Friday and was posted in a statement on the State Bank of Vietnam's (SBV) website about an hour after it emailed comments to media, saying the bank will be "consistent with its interest rate and deposit measures".
"The rising foreign exchange rate (in the domestic market) over the past days are due to psychological factors before the Fed's meeting to raise interest rates ... to 0.25 percent, and the falling yuan," Deputy Governor Nguyen Thi Hong said in the online comments.
"In terms of policy, SBV will stabilize the foreign exchange market and foreign exchange rate," Hong said.
The dong weakened as much as 0.1 percent to 22,546 a dollar earlier Thursday, before trimming its loss to trade at 22,529 at the close in Hanoi, according to prices from local banks compiled by Bloomberg. It can trade as much as 3 percent on either side of the official reference rate, which has been left unchanged at 21,890 since the third devaluation of this year on August 19. The weakest level permitted by the current range is 22,547.
In August, Vietnam became one of the first countries in Asia to intervene in currency markets after China devalued the yuan, by devaluing the dong by 1 percent and widening the dollar/dong band twice.
It had already devalued its currency twice, each time by 1 percent, before to the yuan depreciation, even though Governor Nguyen Van Binh had promised to keep the dong within a 2 percent range, to Vietnam's export-driven economy.
The dong/dollar rate has been lingering near its ceiling since Tuesday as the U.S. rate increase came closer.
"Removing the individual dollar deposit rate is unlikely to help ease the dong/dollar rate, as proven with the scrapping of corporate rate earlier this year," said Do Quang Hop, deputy research manager of Saigon-Hanoi Securities.
"SBV will use all of its measures to keep the foreign exchange rate stable, but the main issue here is that SBV anchors the rate to the U.S. dollar, which is hard to completely resolve," Hop said.