The State Bank of Vietnam said on Monday banks cut their dollar lending rates for nearly all terms in the week ending August 27. Rates on 12-month loans dropped to 1.7 percent from 2.8 percent the previous week.

Many companies that needed dollars earlier this year have switched to borrowing in dong because of a government rate subsidy package, leaving banks with a surplus of the foreign currency, the official Securities Investment newspaper said.

It said central bank measures to limit the use of the dollar in domestic markets had also helped reduce demand.

On August 20 the central bank and the Industry and Trade Ministry agreed to tighten control over foreign exchange as dollar rates rose on the unofficial market and the country’s exports were forecast to fall 6.4 percent this year to US$58.6 billion.

On the unofficial market, the dollar rose to 18,390/18,430 dong on Monday from 18,370/18,390 last Friday.

Commercial banks lent businesses about VND398 trillion ($22.3 billion), equivalent to 81 percent of the government’s loan-subsidy program, as of August 27, according to a statement on the government’s website.

Last week the value of subsidized loans rose 0.43 percent from a week before, accelerating from 0.25 percent the previous week, central bank data shows.

Governor Giau told a seminar last week the central bank would maintain its looser monetary stance, with the annual credit growth target lifted to 30 percent from the 25-27 percent set earlier by the government.

Money supply would be targeted to expand 30 percent in 2009, accelerating from 20 percent growth last year, Giau said in a statement seen on Monday.

“Inflation is on a rising trend in the last months of the year due to the impact of the easier fiscal and monetary policy,” he said, forecasting inflation this year at 6 percent to 8 percent. Consumer prices surged 22.9 percent in 2008.

The central bank said state-run banks raised their dong deposit rates slightly, offering to pay 8.2-8.4 percent on six-month deposits against 8.0-8.4 percent a week ago, but that was below the 8.5-8.9 percent offered by partly private banks.

Last week bankers said commercial banks extended their campaign to raise dong funds by increasing interest rates and in one case offering gold prizes.