Vietnam Cuts Interest Rates as Global Easing Spreads

Vietnam said it would cut interest rates to boost economic growth, joining nations from Sri Lanka to Australia in easing monetary policy.

The State Bank of Vietnam will cut the refinancing rate to 7 percent from 8 percent effective May 13, Deputy Governor Nguyen Dong Tien said at a briefing in Hanoi today. The discount rate will be reduced to 5 percent from 6 percent, he said.

The rate cuts are the eighth since the start of 2012, following a reduction in March, and the central bank said today inflation will hover around 6.5 percent to 7 percent in 2013, lower than the 8 percent that lawmakers targeted in November. Prime Minister Nguyen Tan Dung approved a plan earlier this year to restructure banks by 2015 after elevated bad-debt levels crimped consumption and slowed economic growth.

“If the inflation outlook goes further down, the risks of another cut will rise,” Vincent Conti, a Singapore-based economist at Australia & New Zealand Banking Group Ltd., said in a note. “The rate cuts can assist in boosting credit demand, but credit growth is being suppressed on the supply side.”

Three year-government bond yields dropped the most in nearly three weeks, while the dong gained 0.1 percent at 12:01 p.m. local time. The Ho Chi Minh City Stock Exchange’s VN Index closed little changed.

The central bank also cut short-term rates on loans in sectors including agriculture, exports and small- and medium enterprises to 10 percent from 11 percent. While liquidity in the banking system has improved, businesses still face “many difficulties due to low market demand and companies’ ability to absorb loans is still limited,” the monetary authority said.

‘Good Move’

The rate cuts are “a good move by the central bank, as it will help bring lending rates down to support businesses, and bolster the economy,” Alan Pham, chief economist at VinaCapital Group, said by phone from Ho Chi Minh City.

Executives at Joint-Stock Commercial Bank for Foreign Trade of Vietnam, Bank for Investment and Development of Vietnam and Vietnam Bank for Agriculture and Rural Development said today they would lower lending rates to a maximum of 13 percent from as much as 15 percent.

Vietnam’s economy expanded 5.03 percent last year, the least since 1999. The slow restructuring of banks and state companies contributed to the International Monetary Fund’s decision to cut the nation’s growth forecasts for this year and next, Sanjay Kalra, the Hanoi-based resident representative, said in an interview on May 3.

Policy makers around the world have moved to counter currency appreciation and stimulate growth, with Sri Lanka cutting rates more than estimated today and the Bank of Korea unexpectedly lowering borrowing costs yesterday, following the lead of Australia, Europe and India this month.

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