Vietnam's central bank advised against lowering deposit rate cap

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Several economists have advised the central bank against lowering the 14 percent dong deposit rate cap, saying inflation was still too high.

The ceiling should only be lowered when the economy has been completely stabilized, or else it would lead to negative consequences for the banking sector, Vu Thanh Tu Anh, research director at Fulbright Economics Teaching Program, told the VnExpress news website.

With annual inflation staying high at more than 20 percent, a rate cap of 12 percent would not fit, he said.

Anh was responding to speculation that the State Bank of Vietnam would bring the deposit rate cap down to 12 percent.

State Bank Governor Nguyen Van Binh told legislators late last month that the monetary authority would consider lowering the dong deposit rate cap in December. He said a new ceiling of under 14 percent is reasonable, considering the inflation target for 2012 has been set at under 10 percent.

But central bank officials have yet to announce any follow-up action on Binh's statement. 

Economist Nguyen Duc Thanh, who heads the Vietnam Center for Economic and Policy Research at the University of Economics and Business in Hanoi, said now is not the right time to cut deposit rates.

The goal to control inflation next year is still "on paper" and whether it can be achieved depends on many factors, he said.

When the real interest rate the difference between the nominal interest rate and the inflation rate is still a negative number and banking liquidity is not strong, it's too soon to lower deposit rates, Thanh said.

Small banks will face even more difficulties in attracting deposits if the 14 percent rate cap is reduced, he added.

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