Vietnam’s stock market suffered its biggest drop in seven months after the State Bank raised the benchmark interest rate and devalued the currency.
The State Bank on Wednesday raised the prime interest rate from 7 percent to 8 percent, effective next Tuesday.
The central bank also raised the reference trading rate of the Vietnamese dong by 5.4 percent, to 17,961 dong to the US dollar.
At the same time, it narrowed the band within which commercial banks are allowed to trade the dong from 5 percent to 3 percent on either side of the reference rate. The actual exchange rates offered by banks rose 3.3 percent, from 17,886 to 18,500 dong to the dollar as of yesterday.
The VN-Index ended on Wednesday down 4.1 percent, at 482.6 points, the lowest level since Sept. 7.
Traders yesterday were “as panicked as early last year, when the Vietnamese and global economy went into crisis,” said Dao Viet Anh, an analyst at FPT Securities in Hanoi. “This psychology will continue, so I think the market will be down in the coming days.”
“Many traders had the same thought I did, that when the 500-point psychological support level was breached on Thursday, the market was sure to drop further,” FPT Securities trader Nguyen Khai said.
Nguyen Thu Huong, a trader at Kim Long Securities, said traders were also influenced by bad news from Vietnam’s General Statistics Office (GSO).
The GSO announced the inflation rate for this month had been 0.55 percent, up from 0.37 percent last month.
The Vietnam Economics Times yesterday warned the country was likely to return to high inflation. The paper noted the rising consumer price index, a trade deficit likely to hit US$12.5 billion this year, a shortage of dollars in the economy, and the government’s continued loose credit policies.
Vietnam’s stock market lost 65 percent of its value last year, with the VnIndex falling to just 235 points. It had increased to 640 points at its peak on Nov. 22.
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