Vietnam Further Cuts Rates to Shield the Virus-Hit Economy

(Bloomberg) -- Vietnam’s central bank, looking to help businesses struggling to recover from the economic blow of the coronavirus outbreak, has cut policy interest rates effective May 13 for the second time in two months.

The refinancing rate will be reduced to 4.5% from 5% while the discount rate trimmed to 3% from 3.5%, the State Bank of Vietnam said in a statement on its website. The dong deposit rate cap for terms between one month to less than six months will be reduced to 4.25% from 4.75%.

Vietnam’s central bank joins peers in the region in adding monetary stimulus to support their economies as the pandemic hurts businesses. Inflation cooling to a six-month low in April gives the monetary authority more scope to support growth that has slumped to the lowest rate since at least 2013 in the first quarter.

Prime Minister Nguyen Xuan Phuc said last week that Vietnam needs to focus more on resuming economic activities and strive to achieve economic growth of more than 5% this year, higher than the 2.7% the IMF has forecast, according to a posting on the government’s website. That would mark a considerable slowdown from last year’s 7.02% pace, which was its second-fastest rate since 2007.

“This is a necessary move by the central bank to assist commercial lenders to reduce capital costs so that they will be able to keep up with the move to lower the lending rates to support the economy,” said Nguyen Anh Duc, head of institutional sales at SSI Securities Corp. “However, the reduction is still small and we expect more to come.”

Other Highlights

• The repurchase rate, also known as the open-market operations rate, will be lowered to 3% from 3.5%
• The overnight lending rate in the inter-bank market is being cut to 5.5% versus 6%.
• Vietnam’s banks were ordered to lower the maximum dong lending interest rate for short-term loans to 5% from 5.5%

Vietnam’s central bank last cut policy rates on March 17, with the biggest reduction in the refinancing rate of 1 percentage point.

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