Vietnam's bonds drop after central bank raises refinancing rate

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Vietnam's government bonds fell Friday after policy makers raised their lending rate to banks for the first time since May. The dong weakened.

The State Bank of Vietnam boosted the refinancing rate by 1 percentage point to 15 percent with effect from Oct. 10, according to a statement on its website Thursday. The move is aimed at improving "the efficiency of monetary policy" and regulating "market interest rates," the central bank said.

"The increase in the refinancing rate indicates that it will be difficult for market rates to go down in the short term," said Luu Hai Yen, a Hanoi-based analyst at Thang Long Securities Joint-Stock Co. "Investors are reluctant to buy bonds at this point."

The yield on three-year government bonds rose two basis points, or 0.02 percentage point, to 12.31 percent, according to a daily fixing from banks compiled by Bloomberg.

The dong dropped 0.2 percent to 20,859 per dollar as of 3:10 p.m. in Hanoi on Friday, according to data compiled by Bloomberg. The central bank fixed the reference rate at 20,653 per dollar Friday, compared with 20,648 Thursday, according to its website. That was the third adjustment this week. The currency is allowed to trade up to 1 percent on either side of the rate.

Consumer prices climbed 22.4 percent in September from a year earlier, compared with 23 percent in August. That is still the fastest inflation rate among 17 Asian-Pacific economies tracked by Bloomberg.

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