Interest rates are likely to fall in June as the government is tightening control over the ceiling rate and taking strong measures to combat dollarization, a government advisor says.

Tran Hoang Ngan, a member of the National Advisory Council for Financial and Monetary Policies, said in an interview with the Dau Tu (Investment) newspaper Monday that when the dollar black market and exchange rates are placed under control, the central bank will be able to lower dong interest rates.

Moreover, a new circular has set an interest rate cap on dong deposits, “creating a legal framework for the State Bank to correct the market and stabilize interest rates,” he said. 

The State Bank of Vietnam earlier this month recognized, for the first time, the rate cap on dong deposits that had been established by the bank association. All banks are required to publicly announce their deposit rates and are not allowed to offer perks or cash bonuses that would raise rates above 14 percent, the central bank said.

Ngan warned banks against competing against each other by raising deposit rates too high.

High deposit rates will translate to high borrowing costs, he said, adding that banks will face bad debts when their clients are unable to repay loansd at very high interest rates.