By Anh Minh October 28, 2022 | 10:02 p.m. PT

A worker counts Vietnamese banknotes at a bank in Hanoi. Photo by VnExpress/Giang Huy

Raising policy rates is imperative to keep exchange rates under control, a very important factor for foreign investors, said State Bank of Vietnam Governor Nguyen Thi Hong.

To stabilize the foreign exchange market amid global uncertainties, Vietnam must accept a short-term depreciation of its currency, she told lawmakers at a meeting on Friday.

“High interest rates could hurt businesses and slow economic growth somewhat, but stable foreign exchange and banking systems will allow recovery to accelerate later.”

Increasing banks’ credit quota would put pressure on the exchange rate and foreign exchange market, that’s why the central bank kept it under control this year, and banks would have faced liquidity crisis , she said.

The SBV raised its key rate twice this month to 6% after holding it at 4% for two years.

Banks raised interest rates on deposits. The four public lenders Vietcombank, BIDV, Vietinbank and Agribank now pay 7.4% for deposits over 12 months.

The central bank also widened the dollar-dong’s daily trading band from 3% to 5%, and analysts at SSI Securities expect the dollar to continue gaining as people look to hoard it amid global uncertainties.

Hong said the economy faced bigger challenges than expected due to rising global inflation, falling stock markets and issues with the bond market, which had a strong impact on the forex and banking systems. “It is therefore a priority to keep banks functioning for now, and the central bank is ready to provide liquidity to lenders to cover their needs.”