Vietnam Lowers Key Rates as Growth Holds Below 5% This Quarter

Vietnam Posts 2nd Straight Quarterly GDP Growth of Less Than 5%
An evening view of downtown Ho Chi Minh City. Vietnam’s economy has struggled with stagnant bank lending and high inflation that crimped corporate growth and domestic demand. Photographer: Justin Mott/Bloomberg

Vietnam cut interest rates for a fifth time this year to spur growth after a report yesterday showed economic expansion stayed below 5 percent this quarter.

The State Bank of Vietnam lowered the refinance rate to 10 percent from 11 percent and the discount rate to 8 percent from 9 percent, it said in a statement on its website yesterday, with the cuts effective July 1. Gross domestic product rose 4.66 percent in the three months ending June from a year earlier, after climbing 4 percent in the first quarter, the General Statistics Office said.

Vietnam has struggled with stagnant bank lending and high inflation that crimped corporate growth and domestic demand, with Europe’s debt crisis and China’s economic slowdown also posing risks. The government reduced its target for GDP growth of as much as 6.5 percent in 2012 to 6 percent, and Do Thuc, general director of the statistics office, said yesterday full-year expansion may be 5.4 percent to 5.7 percent.

“While we expected another interest-rate cut this year, this cut comes a little earlier than we expected,” said Louis Taylor, chief executive officer for Standard Chartered Plc in Vietnam, Laos and Cambodia. In the context of the GDP number, “the cut is less surprising. With inflation having fallen further, there is still an argument that real interest rates are higher today than they were three months ago,” he said.

The benchmark VN Index rose 1 percent yesterday, the most in two weeks, while the Vietnamese dong strengthened 0.1 percent to 20,878 per dollar, according to prices from banks compiled by Bloomberg.

State Spending

The Southeast Asian nation has entered a period of sluggish growth, the World Bank said in a report this month that cited the slow pace of structural reforms and inefficiencies in state-owned companies, banks and public investments.

The government will accelerate state spending and boost bank lending to bolster the economy, Deputy Prime Minister Nguyen Xuan Phuc told the National Assembly on June 15. It also plans to cut some corporate taxes, defer sales tax payments and lower lending rates for some companies, he said.

Consumer prices rose 6.9 percent this month, compared with a rate of 23.02 percent in August 2011.

“We are encouraged the government is showing itself willing again to provide whatever solutions are necessary to get the economy moving,” Kevin Snowball, the Ho Chi Minh City-based chief executive of PXP Vietnam Asset Management, wrote in a note this month, citing the creation of a fund to get non-performing loans off the balance sheets of banks and revive lending.

Vietnamese banks’ outstanding loans fell 0.59 percent from the end of 2011 through April, the central bank said on June 21.

Boost Lending

Yesterday’s rate cut “means the central bank really wants lenders to boost lending to help businesses and bolster the economy,” said Phan Thi Chinh, deputy chief executive officer at the Bank for Investment and Development of Vietnam.

The economy expanded 4.38 percent in the first half of the year, down from 5.63 percent a year earlier. Vietnam was hit by many difficulties in 2010 and 2011, and conditions “became even more difficult in the first half of this year,” Thuc said in a briefing in Hanoi yesterday.

Industry and construction, which accounted for 40 percent of gross domestic product in the first half of the year, grew 3.81 percent in that period. The sub-category comprising only construction slipped 0.8 percent, the Statistics Office said.

Agriculture, forestry and fisheries, which made up 22 percent of gross domestic product, expanded 2.81 percent in the first half. Services, which made up 38 percent of the economy, grew 5.57 percent in the first half. The number of foreign visitors rose 14 percent in that period.

Emirates, the world’s biggest airline by international passenger traffic, began daily flights this month between Dubai and Ho Chi Minh City, and said it will raise capacity on the route in October.

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