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Vietnam ups interest rates, cuts dong value
HANOI, June 10 - Vietnam is raising interest rates from June 11 and lowering the value of the dong by 1.96 percent on Wednesday to try to fight double-digit inflation and currency speculation, the central bank said on Tuesday.
State Bank of Vietnam statements said the benchmark interest rate would rise to 14 percent from 12 percent effective on Wednesday.
It also increased the refinancing rate to 15 percent from 13 percent and the discount rate to 13 percent from 11 percent, raising the rates for the third time this year.
"Overall the move is constructive and shows they are taking a multi-pronged approach: cracking down on illegal speculation, hiking rates to cool domestic demand and conceding some dong weakness," said Claudio Piron, currency strategist at JP Morgan Chase Bank.
The central bank said it was maintaining a daily dollar-dong trading band of +/-1 percent.
But it said the official daily exchange rate for June 11 only would be 16,461 dong per dollar, down from 16,139 dong per dollar on Tuesday, representing a cut of 1.96 percent.
One Vietnamese banking analyst said the central bank "is testing the waters" but setting just a one-day rate.
"It's totally unpredictable what the rate the day after tomorrow will be."
Vietnam's economy and the dong are under pressure from inflation running at more than 25 percent and soaring imports that have tripled the trade deficit this year to $14.4 billion.
The government said last week it had no plans to devalue the dong in spite of the forwards markets pricing in a nearly 30 percent depreciation against the dollar in one year.
The government also said it had sufficient foreign currency reserves to meet investor demand to convert funds into dollars.
The dollar jumped to around 18,000 dong last week in the gold shops in Hanoi and Ho Chi Minh City, or about 11 percent higher than the central bank's regulated rate, after residents rushed to buy the currency to hedge against soaring inflation.
(Reporting by Nguyen Nhat Lam and Grant McCool in HANOI; Vidya Ranganathan in SINGAPORE; editing by Neil Fullick)
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