Vietnam cut its interest rates to support a slowing economy even as the nation faces Asia’s fastest inflation.
The State Bank of Vietnam reduced the refinancing rate for the first time since 2009 to 14 percent from 15 percent, effective tomorrow, it said in a statement on its website today. It also cut the discount rate to 12 percent from 13 percent and the dong deposit cap for terms of one-month and above to 13 percent from 14 percent.
Vietnam joins emerging markets from Thailand to Brazil in lowering borrowing costs as Europe’s sovereign-debt crisis and rising oil prices threaten expansion. The move contrasts with the nation’s so-called Resolution 11 policy passed a year ago, which aimed to rein in an inflation rate that remains above 16 percent even after easing for a sixth straight month in February.
“The rate cut aims to support growth, as inflation pressures have eased and liquidity in the banking system has improved,” Hai Pham, a Singapore-based analyst at Australia & New Zealand Banking Group Ltd., said before the decision. “The central bank is confident about the inflation trajectory.”
The central bank had announced its intention to cut rates on March 6. The Government Office on Feb. 8 told the monetary authority to closely monitor the market in order to reduce lending interest rates to “suitable” levels at a “suitable” time.
Vietnam’s inflation rate in February was 16.44 percent, down from 17.27 percent in January. It remains the fastest in a basket of 17 Asia-Pacific economies tracked by Bloomberg. The nation is also juggling a trade deficit and liquidity concerns in the banking system.
The economy expanded 5.89 percent last year, down from 6.78 percent in 2010, and the government aims for growth of 6 percent growth this year. The nation may undermine progress toward economic stability if it loosens monetary policy too soon, the World Bank and the International Monetary Fund said in December.
South Korea, Indonesia and Malaysia held rates last week, while Brazil cut borrowing costs more than expected. India unexpectedly slashed the amount of deposits lenders need to set aside as reserves before a policy meeting this week.
--Jason Folkmanis in Ho Chi Minh City and Nicholas Heath in Hanoi. Editors: Rina Chandran, K.Oanh Ha
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