Vietnam said it would cut interest rates to boost economic growth, joining nations from Sri Lanka to Australia in easing monetary policy.
The State Bank of Vietnam will cut the refinancing rate to 7 percent from 8 percent effective on Monday, Deputy Governor Nguyen Dong Tien said at a briefing in Hanoi yesterday.
The discount rate will be reduced to 5 percent from 6 percent, he said.
The rate cuts are the eighth since the start of last year, following a reduction in March, and the central bank said yesterday inflation would hover around 6.5 percent to 7 percent this year, lower than the 8 percent that lawmakers targeted in November last year.
Vietnamese Prime Minister Nguyen Tan Dung approved a plan earlier this year to restructure banks by 2015 after elevated bad-debt levels crimped consumption and slowed economic growth.
“If the inflation outlook goes further down, the risks of another cut will rise,” Vincent Conti, a Singapore-based economist at Australia & New Zealand Banking Group, said in a note. “The rate cuts can assist in boosting credit demand, but credit growth is being suppressed on the supply side.”
Three-year government bond yields dropped the most in nearly three weeks, while the dong gained 0.1 percent as at 12:01pm.
The Ho Chi Minh City Stock Exchange’s VN Index closed little changed.
The central bank also cut short-term rates on loans in sectors including agriculture, exports and small and medium enterprises to 10 percent from 11 percent.
While liquidity in the banking system has improved, businesses still face “many difficulties due to low market demand and companies’ ability to absorb loans is still limited,” it said.
The rate cuts are “a good move by the central bank, as it will help bring lending rates down to support businesses, and bolster the economy,” VinaCapital Group chief economist Alan Pham said by telephone from Ho Chi Minh City.
Executives at Joint-Stock Commercial Bank for Foreign Trade of Vietnam, Bank for Investment and Development of Vietnam and Vietnam Bank for Agriculture and Rural Development said they would lower loan rates to a maximum of 13 percent from as much as 15 percent.
Vietnam’s economy expanded 5.03 percent last year, the least since 1999.
Policymakers around the world have moved to counter currency appreciation and stimulate growth, with Sri Lanka cutting rates more than estimated yesterday and the Bank of Korea unexpectedly lowering borrowing costs on Thursday, following the lead of Australia, Europe and India this month.