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Low interest rates keep people from depositing   2008-11-27 - DTCK

The continuously decreasing deposit interest rates have prompted people to inject money in other channels including gold, foreign currencies and stocks instead of in banks.


A lot of people who keep cash now regret not making deposits one month ago when they could enjoy the high interest rates of 15-16% per annum. The rates have dropped to 11-12.5% per annum now.


As the bank deposit interest rates have been decreasing sharply, depositing is not the top choice of people anymore. According to the General Director of Asia Commercial Bank ACB Ly Xuan Hai, the capital flowing to ACB and other banks has been slowing down. Meanwhile, according to the HCM City Statistics Office, the capital mobilised by commercial banks in the city in November was VND559,208bil, a modest increase of only 0.4% over the previous month.


Some bankers say that a lot of clients, who have incomes in dollars, previously preferred converting the money into VND to make deposits in VND to enjoy high interest rates, but now they make deposits in US$.


The bankers say that in the past year, people have responded very promptly to changes in the market.


For example, earlier this year, when the VND deposit interest rates increased sharply, a lot of people withdrew money from long-term deposits to make short-term deposits with higher interest rates. In mid year, when the VND/US$ exchange rate increased rapidly (the rate hit VND19,000/US$1), people withdrew VND deposits to purchase dollars to make dollar deposits at banks. When the gold price soared at the beginning of the year, a lot of people withdrew money to purchase gold and make deposits in gold.


However, economists still believe that there is no need to shift from VND deposits to US$ deposits at this moment.


“Making VND deposits proves to be more profitable than US$ deposits,” an economist said. VND depositors still can enjoy interest rates two-fold higher than those of US$ deposits. The highest rate offered for US$ deposits is now 5.75% per annum, while the highest rate for VND deposits remains at 12% per annum.


The economists say that inflation is now not a big concern anymore; therefore, depositors should not worry about the devaluation of the VND. The State Bank of Vietnam has many times confirmed that it would take action to stabilise the value of currencies in order to stabilise the national economy.


In fact, there are many other investment channels than simply VND or US$ deposits, including gold, real estate and stocks.


Investors may think of injecting money in stocks as stock prices have stopped falling, and more importantly, they may be attracted by the high dividends paid by listing companies. It is expected that the cash flow will go to the stock market when bank interest rates become unattractive.


General Director of SJC Securities Company Huynh Anh Tuan said the current market liquidity is not suitable for surfing investors. However, it is reasonable for long-term investments.


The gold price has been on the rise after exceeding the $800/oz threshold late last week. Huynh Trung Khanh, Senior Advisor to the World’s Gold Council in Vietnam, said there is likely to be a new price increase wave at the end of November or early December, when jewellery producers collect material gold for production. He said that the gold price is forecast to march closely towards the $900/oz threshold.


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