Central bank makes first rate cut since 2020 to support economic growth
Central bank makes first rate cut since 2020 to support economic growth
The State Bank of Vietnam (SBV) has made its first policy interest rate cut since October 2020 to stabilise the monetary market and support economic growth.
Under Decision No 313/QD-NHNN issued by the SBV late Tuesday, several policy rates have been adjusted down by 50-100 basis points since Wednesday.
Accordingly, the rediscount interest rate has been reduced from 4.5 per cent per year to 3.5 per cent per year while overnight electronic interbank rate and interest rate for loans to offset capital shortages in clearance between the central bank and commercial banks have been also decreased from 7 per cent per year to 6 per cent per year.
The SBV has also adjusted down the maximum short-term interest rate of Vietnamese dong-denominated loans from 5.5 per cent to 5 per cent per year to meet capital needs of the Government’s priority industries.
The maximum short-term interest rate of dong-denominated loans of People's credit funds and microfinance institutions has also decreased from 6.5 per cent to 6 per cent per year.
According to the SBV, reducing the interest rates is a flexible solution in line with current market conditions to meet the National Assembly and Government's goal on economic recovery as it helps reduce the market interest rates, contributing to removing difficulties for firms and the economy.
Notably, the reduction of the short-term lending interest rate cap for priority industries to 5 per cent per year creates better conditions for firms and individuals in the industries to access loans at a lower cost.
According to the SBV, the rate cut was made as the country’s inflation is under control. Data from the General Statistics Office (GSO) showed the consumer price index (CPI) last month increased by 0.45 per cent against the previous month. For the first two months of 2023, the CPI increased by 4.6 per cent against the same period last year.
The SBV’s move was surprising as central banks around the world are still tightening their monetary policies, increasing and keeping interest rates at a high level, especially when the US Federal Reserve (Fed) is forecast to continually raise interest rates by 25 basis points at its meeting on March 22 this year to 4.75-5 per cent per year, and may increase further during its meetings in May, June and July.
Bui Van Huy, director of DSC Securities Company’s HCM City branch, said most people believe as the Fed maintains high interest rates, it will make it difficult for the SBV to lower interest rates because it may affect the country’s foreign exchange rate.
According to Huy, this is partly true, but it should be noted that Viet Nam's inflation rate is currently quite well controlled and lower than that of the US and many other countries. Therefore, if Viet Nam can keep a low inflation rate, it is quite possible for Viet Nam's interest rates to be equal to or even lower than that of major countries in the short run.
In February 2023, commercial banks in Viet Nam also continued to agree to reduce deposit interest rates to reduce lending interest rates, which supports firms and the economy.
Accordingly, commercial banks have reduced deposit interest rates from 0.2-0.5 percentage points per year for a term of 6-12 months. Currently, the interest rate of newly arising deposits from commercial banks is about 6.7 per cent per year and the interest rate of newly arising lending from commercial banks is about 9.4 per cent per year.
