Vietnam Cuts Interest Rates to Aid Growth After Inflation Slowed

Photographer: Jerome Ming/Bloomberg

A man walks past the State Bank of Vietnam in Hanoi. Close

A man walks past the State Bank of Vietnam in Hanoi.

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Photographer: Jerome Ming/Bloomberg

A man walks past the State Bank of Vietnam in Hanoi.

Vietnam’s central bank cut interest rates as inflation slowed, seeking to spur lending and boost consumption after a credit crunch slowed economic growth to a 13-year low.

The State Bank of Vietnam lowered the refinance rate to 8 percent from 9 percent and the discount rate to 6 percent from 7 percent, according to a statement on its website. It also reduced the cap on dong deposit interest rates to 7.5 percent from 8 percent. The new rates are effective March 26.

Vietnam last reduced borrowing costs in December, even as the World Bank said the nation faces the risk of premature easing that may trigger a resurgence in inflation. The economy grew 5.03 percent last year after rising levels of bad debt at lenders curbed expansion, leading the government to pledge to speed up the restructuring of its banking system.

“A lower deposit interest rate cap will enable banks to reduce lending rates and give more loans, which can bolster businesses,” Hoang Thach Lan, head of the brokerage unit at Ho Chi Minh City-based MHB Securities Co., said before the decision. “It may fuel inflation though, so we need to be mindful.”

The Ho Chi Minh City Stock Exchange’s VN Index gained 0.7 percent at the close today. The dong was little changed at 20,945 against the dollar.

Consumer prices rose 6.64 percent in March from a year earlier, after climbing 7.02 percent in February, according to government data.

The central bank said in December it is targeting credit growth of 12 percent this year, up from about 7 percent in 2012. Bank loan growth fell 0.28 percent in the January-to-February period from the end of last year, according to government data.

Master Plan

Prime Minister Nguyen Tan Dung in February approved a master plan to revamp the economy and said a roadmap to clean up state-owned enterprises that account for about 37 percent of gross domestic product will be ready by June. In March, he appointed Deputy Prime Minister Vu Van Ninh and central bank Governor Nguyen Van Binh to oversee a panel to restructure the banking system by 2015.

The health of Vietnam’s lenders is a growing concern, the World Bank said in December, citing their deteriorating asset quality and slow progress in restructuring. The lender forecasts economic expansion will be 5.5 percent this year, a third straight year of growth below 6 percent.

Slower economic growth curbed import demand and helped Vietnam post an annual trade surplus last year for the first time in two decades. At the same time, improving exports helped build foreign-exchange reserves.

Vietnam’s central bank lowered interest rates six times last year, with the last reductions taking effect Dec. 24.

-- Nguyen Dieu Tu Uyen. Editors: Rina Chandran, Oanh Ha

To contact the reporter on this story: Nguyen Dieu Tu Uyen in Hanoi at uyen1@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

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