Bonds Rise; Central Bank Raises Rates to Slow Inflation

Bonds rose for a second day on speculation inflation will slow as the central bank increased interest rates to 14% today.

Yields are near the highest since at least July 2006 after the Southeast Asian country posted inflation at the fastest in 16 years. The Vietnamese central bank today announced to increase the benchmark interest rate to 14%, from 12%, according to a statement posted on its Web site.

``This is a good news for the market,'' said Dam Bich Thuy, chief executive officer of Australia & New Zealand Banking Group Ltd.'s Vietnam unit in Hanoi. ``The move showed that the government is taking action to address investors' concerns.''

The yield on the benchmark five-year notes dropped 28 basis points, to 17.300, according to a daily fixing price from 10 banks compiled by Bloomberg. A basis point is 0.01 percentage point.

The base rate increase, which is the third time this year, and will take effect from June 11, is ``to curb inflation and stabilize the economy'' the statement said.

Vietnam's dong dropped 0.04% to 16,297.50 per dollar as of 4 p.m. in Hanoi, according to data compiled by Bloomberg.

The State Bank of Viet Nam will set the dong's daily reference rate at 16,461 per dollar, or 2% lower tomorrow, it said in the today statement. The currency is allowed to trade up to 1% on either side of the rate. The dong traded at 16,296.5 per dollar today. The trading band will remain at 1%, the bank said in today's statement. (Bloomberg)