The State Bank of Vietnam will cut the interest rate of dollar-denominated deposits offered by local banks starting Friday, it said late Thursday, shortly after the U.S. Federal Reserve raised its interest rate.

The interest rate for dollar-denominated deposits will be cut to 0% from 0.25% for individual depositors, while the rate for corporate depositors will remain at 0%, the country’s central bank said in a statement.

The move is aimed at discouraging people from holding the U.S. currency, the central bank said, at a time when the dong/dollar exchange rate is facing pressure as the result of the Fed’s rate increase and the traditional rise in the demand for the dollar ahead of the year-end.

The central bank has so far this year devalued the Vietnamese dong by a cumulative 5% and widened the dong’s trading band against the dollar to 3% from 1% as a pre-emptive step to cope with the U.S. rate rising and in response to the depreciation of the Chinese yuan.

The central bank said after its latest dong devaluation in August that it would keep the exchange rate unchanged at least until the end of this year, and even during the first months of next year, despite the Fed rate increase.

Deputy governor of the central bank, Nguyen Thi Hong, said Thursday the central bank will stick to its target of keeping the exchange rate stable.

Ms. Hong said dollar supply has been on the positive side, with Vietnam reporting a trade surplus over the past two months, while foreign direct investment and remittance inflows having been robust.

By Vu Trong Khanh - The Wall Street Journal - December 17, 2015