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Vietnam Central Bank Cuts Deposit Rate Cap in Latest Easing Move

Nguyen Dieu Tu Uyen and Nguyen Xuan Quynh

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The State Bank of Vietnam, in its latest easing move, cut its interest-rate cap for dong deposits and ordered lenders to lower interest rates to support key business sectors.

The limit on interest rates was cut to 5% from 5.5%, effective Tuesday, for dong deposits with maturities of one month to less than 6 months, the central bank said in a statement. The regulator also ordered banks to lower the maximum dong lending rate for short-term loans to 6% from 6.5%. That’s aimed at helping companies, particularly in agriculture, high-tech industries and exporters, according to the statement on its website late Monday.

The steps come after the central bank cut its policy interest rate in September for the first time in more than two years and Prime Minister Nguyen Xuan Phuc told parliament the government wanted to cut lending rates in priority sectors. The moves should help maintain macro-economic stability and support growth, with inflation beneath the government’s 4% target, the central bank said in its statement.

“This could be a signal of further monetary policy easing, as the government is pushing for faster economic growth to have a better buffer for any headwind” from the global slowdown, said Nguyen Duc Thanh, head of the Vietnam Institute for Economic and Policy Research. “It will definitely help boost lending to businesses. However, it has to make sure that the money flow will run into production, not high-risk areas such as property speculation.”

Vietnam is targeting economic growth of about 6.8% next year, the prime minister said last month. Growth accelerated to 7.31% on-year in the third quarter with foreign investment pouring into manufacturing, as companies shift production out of China amid the trade war with the U.S.

The benchmark VN Index rose as much as 0.4% Tuesday morning, and is up 12.7% so far this year.

(Updates with economist’s comments in the fourth paragraph.)

--With assistance from Nguyen Kieu Giang.

To contact the reporters on this story: Nguyen Dieu Tu Uyen in Hanoi at uyen1@bloomberg.net;Nguyen Xuan Quynh in Hanoi at xnguyen20@bloomberg.net

To contact the editors responsible for this story: Nasreen Seria at nseria@bloomberg.net, Michael S. Arnold, Clarissa Batino

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