Hanoi - Vietnam's stock market suffered its largest 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 to 8 per cent, effective December 1.
The central bank also raised the reference trading rate of the Vietnamese dong by 5.4 per cent, to 17,961 dong to the dollar.
At the same time, it narrowed the band within which commercial banks are allowed to trade the dong from 5 to 3 per cent on either side of the reference rate. The actual exchange rates offered by banks rose 3.3 per cent, from 17,886 to 18,500 dong to the dollar as of Thursday.
The VN-Index ended Wednesday down 4.1 per cent, at 482.6 points, the lowest level since September 7.
Traders on Thursday 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," said Nguyen Khai, an FPT Securities trader.
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 November had been 0.55 per cent, up from 0.37 per cent in October.
The Vietnam Economics Times on Thursday warned the country was likely to return to high inflation. The paper noted the rising consumer price index, a trade deficit likely to hit 12.5 billion dollars this year, a shortage of dollars in the economy, and the government's continued loose credit policies.
Vietnam's stock market lost 65 per cent of its value in 2008, with the VnIndex falling to just 235 points. It had increased to 640 points at its peak on November 22.
