State Bank of Vietnam raises interest rate ceiling on deposits

Stacks of money in a bank. Photo by VnExpress/Giang Huy

For the first time in two years, Vietnam’s central raised a series of regulatory interest rates, including deposit, rediscount and redemption rates.

The State Bank of Vietnam made adjustments to several statutory interest rates on Thursday, which will take effect from Friday.

The ceiling on interest rates on deposits, with terms ranging from 1 month to less than 6 months, would be raised by 1 percentage point to 5% per year. However, for popular credit funds and microfinance institutions, people will receive the maximum deposit rates for the aforementioned term range of 5.5% per annum.

For sight deposits and deposits with a term of less than 1 month, the interest rate ceiling is raised from 0.2% to 0.5% per year.

The decline and rediscount rates both see an increase of 1 percentage point to 5% per year and 3.5% per year, respectively.

The overnight interest rate for interbank electronic payment and the interest rate for compensation loan for compensation between the State Bank and credit institutions will increase from 5% to 6% per year.

The move came after the US Federal Reserve (Fed), for a third consecutive meeting, raised its benchmark rate by 75 basis points to fight inflation. State Bank adjustments to statutory interest rates have signaled that sources of capital for commercial banks are no longer as cheap as they once were.

Raising interest rates on deposits would, however, have a direct impact on banks, businesses and the lives of individuals. A higher ceiling would allow banks, which need funds, to offer higher interest to depositors. This means that loan interest may also increase.

Fund management firm Dragon Capital said that in the short term, the stock market will see fluctuations depending on what is happening in the world.

“History has shown that investors often lose sight of their long-term goals due to short-term swings, and would return to the stock market once it recovers or thrives…We believe that investors would always follow the financial plans they mapped out,” according to a report by Dragon Capital.

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