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Vietnam Cuts Key Interest Rates to help Virus-Hit Firms

Vietnam Cuts Key Interest Rates to help Virus-Hit Firms

(Bloomberg) -- Vietnam’s central bank, joining a wave of easing across Asia to bolster economic growth amid the novel coronavirus outbreak, announced Monday night it was cutting policy interest rates.

The State Bank of Vietnam cut its refinance rate to 5% from 6%, effective today, it said in a statement posted on its website. The regulator also lowered its discount rate to 3.5% from 4%, and reduced the repurchase rate, known as the open-market operations rate, by the same magnitude. The overnight lending rate in the inter-bank market is reduced to 6% vs 7%, according to the statement.

The regulator also cut its interest-rate cap for dong deposits with maturities of one month to less than 6 months to 4.75% from 5%, while ordering banks to lower the maximum dong lending interest rate for short-term loans to 5.5% from 6%.

Vietnam’s central bank joins peers in the region that are adding monetary stimulus to support their economies as the coronavirus outbreak hurts businesses. The government, which is targeting economic growth of 6.8% this year, has warned the expansion is at risk of slowing below 6% if disruption from the virus continues into the second quarter.

Strong Move

“This is a strong move by the central bank, with all the main policy rates being cut, and the reductions are bigger than their last cuts,” said Hanoi-based economist Nguyen Tri Hieu. “It will help lower borrowing costs for companies and so can spur lending. However, loan demand in companies is low now, so the government will also need fiscal policies to subsidize businesses to help them overcome this difficult period.”

The monetary regulator also set a 1% interest rate for dong compulsory reserves at banks, and 0% interest rate for banks’ compulsory foreign-currency reserves, according to the statement.

The move was prompted by “negative impacts” from the coronavirus pandemic to the global economy, with policy makers elsewhere, including the U.S. Federal Reserve, lowering interest rates, the state bank said. The Fed on Sunday slashed interest rates by 100 points to near zero, pushing other central banks to act.

Vietnam Cuts Key Interest Rates to help Virus-Hit Firms

Central bank Deputy Governor Dao Minh Tu told banks March 12 that policy makers would decide soon on whether to cut interest rates to help businesses struggling because of the virus outbreak. The regulator last month ordered commercial banks to eliminate, cut or delay interest payments on loans to companies struggling with plunging revenue.

Vietnamese Prime Minister Nguyen Xuan Phuc is also planning an economic package that includes tax and interest rate cuts for loans and reductions in insurance fees and land lease costs, according to the government’s website. It didn’t provide a time frame for implementing the package.

To contact the reporters on this story: Nguyen Dieu Tu Uyen in Hanoi at uyen1@bloomberg.net;Nguyen Xuan Quynh in Hanoi at xnguyen20@bloomberg.net

To contact the editors responsible for this story: Nasreen Seria at nseria@bloomberg.net, Michael S. Arnold, John Boudreau

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