Illustrative image. (Photo: cafef.vn)

Hanoi (VNA)
– Vietnamese deposits overseas, which were previously negligible, skyrocketed to hit 7.3 billion USD as of the third quarter of 2015, it was reported at a conference in Hanoi on April 12.

President of the Vietnam Institute for Economic and Policy Research (VEPR) Nguyen Duc Thanh said the significance rise requires further tracking and analysis, adding that this phenomenon can be related to some side effects of the Government’s foreign exchange policy, including the zero percent interest rate for deposits in US dollar.

The issue was highlighted in the VEPR’s report on macroeconomic in the first quarter of the year which was made public at the conference.

While affirming that the curbing of dollarisation is a correct move of the State Bank, the report said more synchronous solutions are needed to enhance trust in the domestic currency. Only then can the economy utilise the great amount of foreign currencies that Vietnamese are now depositing overseas, it said.

According to the report, the absence of an effective USD trading market coupled with the zero-percent interest rate on USD deposits have prompted many people to deposit their foreign currencies abroad while domestic banks have to borrow from foreign banks at high interest rates.

It also said low interest rates for both deposits and loans in USD together with expectations of VND devaluation following the devaluation of the Chinese yuan have prevented banks from finding borrowers of USD. As a result, depositing foreign currency in foreign banks becomes the most profitable solution.

If this theory is proved to be true, the amount of deposits overseas can continue to rise, the report said.

The report also noted the potential risk of rising inflation in the latter half of the year when the fees of many health care and educational services are adjusted up, world prices recover and food prices go up as a consequence of drought.

VEPR recommends policy-making agencies to control money supply at suitable levels, adding that the target of 18-20 percent of credit growth this year may affect inflation control.

The report underlined foreign direct investment as a bright spot in the overall economic picture, with the inflow remaining healthy and stable in the reviewed period.-VNA