Interest cap to stay put

Interest cap to stay put

In order to maintain market stability, the State Bank of Viet Nam will not remove the current cap on deposit interest rates, State Bank Governor Nguyen Van Binh said yesterday in a meeting here with a citizens' group.

Binh told the voters that now was not a suitable time to remove the cap, noting that, while the liquidity of many banks had improved, some ailing credit institutions still faced difficulties.

"If the deposit interest rate cap were removed, these ailing banks would raise deposit interest rates to attract depositors, causing an overall rise in lending rates as well," Binh said.

The State Bank regulates interest rates based on inflation rates and monetary market and has tightened the cap on deposit rates four times since March. A current cap of 9 per cent has been imposed on bank deposits of less than 12 months.

"When the country's production and businesses bounce back, the State will remove the cap," Binh said.

Meanwhile, Binh said, the cap was beneficial in helping control the nation's inflation rate.

"The rate helps deposits in dong become more attractive than US dollars and gold, minimising speculation in these assets," he said.

As some banks were still offering higher interest rates to attract depositors, Binh said that the central bank was working closely with other relevant agencies to better supervise enforcement of the interest rate cap and reveal any violations.

He said that the central bank would also continue to impose a lending interest rate cap for the benefit of several priority industries to ease their access to needed credit. Four priority industries are currently entitled to receive loans at no more than 13 per cent per year.

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