HANOI - Dollar and dong loan rates in Vietnam started falling on Monday thanks to improved liquidity following a week-long holiday as the central bank kept injecting cash into banks after a devaluation this month.
Bankers said the central bank has come under pressure to raise the base rate, Vietnam's benchmark interest rate, possibly from next month, to help ease inflation.
High demand for cash before Tet, or the Lunar New Year festival between February 13 and February 18, to pay year-end bonuses and clear debts pushed up interest rates on Vietnam's interbank markets two weeks ago.
But as the country rheopened for business on Monday, dong rates on loans from overnight to two-month terms eased along with dollar rates on most terms, except for dollar overnight rates, Reuters data showed.
Fixings for overnight dong loan rates eased to 10.63 percent on Monday from the year high of 10.88 percent last Friday, but remained above 10.57 percent on February 12 before the Tet holiday.
Bankers said unofficial lending rates between banks went up to as much as 20 percent at one stage before Tet.
"There are not many in the money market after Tet, but liquidity is expected to improve as the central bank has been pumping cash into banks via open market operations," a dealer with a Vietnamese bank in Ho Chi Minh City said.
A trader at a Japanese bank branch in Vietnam said demand for cash has eased compared with the pre-holiday period. "Liquidity has become less tense," he said.
Bankers said dollar liquidity had also improved after the central bank devalued the dong by more than 3 percent on February 10 for the second time since November to help balance the foreign exchange market and control the trade deficit.
"There is a large possibility of a rate rise because of inflation signs after an increase in the exchange rate and petrol prices," the trader with the Japanese bank said.
Vietnam's top oil product importer and distributor, Petrolimex, raised petrol prices by more than 3 percent on Sunday.
The market was expecting a hike in the base rate of between 0.5 and 1.0 percentage point, from 8 percent at present, bankers said. The central bank is expected to announce the base rate for March later this week.
State Bank of Vietnam Governor Nguyen Van Giau said earlier this month that some tightening could come later this year, while Vietnam also needs funds to fuel its economic growth, expected to accelerate to 7 percent this year from 5.3 percent in 2009.
Giau has already increased the money supply growth target for 2010 to 28 percent from 25 percent. The annual credit growth target is 25 percent.
Hanoi hopes to keep inflation this year below 7 percent, although many economists expect a higher rate. January's annual inflation was estimated at 7.62 percent.
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