Vietnam interest rate caps squeeze dong

Onshore Vietnamese dong liquidity has fallen since the start of September on increased demand for US dollars and gold, notes Standard Chartered.

  • 20 Oct 2011
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Liquidity in onshore Vietnamese dong has dipped in the last month as holders crave US dollars and gold more. Tighter liquidity due to recent rate hikes should also negatively impact short duration government bonds, Standard Chartered argues.

This liquidity has not be aided by recent decision made the State Bank of Vietnam’s introduction of interest rate caps on short-term dong deposits—effective on October 1—which has exacerbated investment into US dollars and gold.

According to Standard Chartered research rate hikes in refinance and overnight lending in Vietnam—effective October 10—have also further reduced liquidity.

“Rising demand for short-term financing since the two announcements [has placed] upward pressure on interbank lending rates and short-term Vietnam government bond yields,” Standard Chartered wrote in a research report published today (October 20).

  • 20 Oct 2011

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