SBV sticks to 0% rate to fight off dollarisation

Measures implemented by the State Bank of Vietnam (SBV) to fight off the dollarisation of the economy, highlighted by the zero per cent interest rate for deposits made in US dollar, have produced positive effects in stabilising the exchange market, increasing foreign reserves, remittance flows and foreign investments, said economists and exchange market experts.

The zero per cent interest rate policy, among others, has contributed significantly to the central bank’s effort to halt the rate of the dollarisation of the economy, effectively reducing half the country’s foreign currency deposit over the last decade.

Efforts to combat the dollarisation have been among the government’s top priorities in recent years as Vietnam adapted its policies to control inflation and stabilise the macro economy while making progress in enhancing the VND’s position. It has played no small part in the country’s success in bringing inflation down from double-digits to single digits and keeping it at a low level.

The central bank has remained vigilant in its watch over the exchange market and interest rates as many of its policies send a clear signal to the market that holding onto the VND is, in more ways than one, more beneficial than the greenbacks. A gradual ceiling decline in interest rates for deposits made in US dollar brought the interest rates to zero per cent at the end of 2015. It has, since then, stayed at zero per cent.

SBV’s deputy governor Pham Thanh Ha said the interest rate has been among the most effective policies implemented by the central bank to slow down the rate of dollarisation.

He said it has been one of the government’s top priorities and long-term objectives for the economy. The implementation of the policy is held to the highest of standards to ensure its success, as a key element in Vietnam’s de-dollarisation strategy.

Economist Le Xuan Nghia said the SBV will likely stay committed to the zero rate to maintain the positive impacts it has on the macroeconomy. He also advised the central bank to keep a watchful eye on the exchange market to ensure the policy’s effectiveness.

Dr Tran Tho Dat said the exchange market, for the most part, has seen a period of stability. He said in principle, regulators should only intervene if there are issues with the market and for the time being, the nought per cent rate policy should be maintained.