Vietnam Money-Interbank dollar trade picks up, dong near low

HANOI, July 7 (Reuters) - Dollar transactions on the interbank market in Vietnam picked up in the past week as banks began selling more to each other under the central bank's newly expanded trading band, bankers said on Monday.

On Monday, the State Bank of Vietnam set the mid-point dong rate at 16,519 to the dollar, a notch up from Friday's all time low of 16,520. Given the 2 percent band, effective since June 27, the dong VND= could move between 16,190 dong to 16,850 dong.

"The volume of interbank dollar trade significantly improved compared to last week when trade was virtually frozen," a foreign exchange trader at a foreign bank in Hanoi said.

"It showed commercial banks were regaining confidence in the central bank's foreign exchange policy and its ability to supply dollar to the market should demand arise," he added.

At 0820 GMT the dollar was being traded near its ceiling of 16,848 dong, about 2.3 percent below the black market rate.

The dollar's unofficial rate has fallen about 2 percent from last Monday when it was quoted at about 17,600 dong, traders said.

The dollar hit all time high of around 19,000 dong in unofficial trade in June when residents rushed to hoard the hard currency, fearing double-digit inflation and record high trade deficits would trigger the dong's devaluation.

The dollar has eased since then after the central bank vowed to close the gap between the spot interbank rates and those on the unofficial markets and to supply banks with enough dollars. (Reporting by Nguyen Nhat Lam; Editing by Tomasz Janowski)