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Vietnam Lowers Policy Rates for Fourth Consecutive Month

June 08, 2012

Vietnam Central Bank Cuts Policy Rates for Fourth Straight Month

A man walks past the State Bank of Vietnam in Hanoi. Photographer: Jerome Ming/Bloomberg

Vietnam’s central bank cut interest rates for the fourth straight month to spur an economy that may expand at the slowest pace in more than a decade, joining policy makers from Brazil to China in countering a global slump.

The central bank’s refinancing rate was cut to 11 percent from 12 percent, while the discount rate was lowered to 9 percent from 10 percent, the State Bank of Vietnam said in a statement on its website yesterday. The reductions are effective June 11, it said.

Monetary-policy makers from around the world are being pressed into action to shore up a global economy that is suffering its steepest slowdown since the recession ended in 2009. Vietnam’s gross domestic product rose 4 percent in the first quarter, and growth this year may be as low as 5.2 percent, central bank Governor Nguyen Van Binh said June 7, which would be the slowest pace since a 4.8 percent rate in 1999.

“With the benign outlook for inflation you can’t blame the SBV for what they’re doing,” said Edwin Gutierrez, a London- based portfolio manager at Aberdeen Asset Management, who helps oversee about $8 billion of emerging market debt, including Vietnamese bonds. “Whether it will have much of an impact is another question because the global headwinds are very strong.”

Maintaining macroeconomic stability is a government priority, Deputy Prime Minister Hoang Trung Hai said in a meeting with lending agencies and donor nations this week in the central town of Dong Ha, according to a release from the World Bank.

The negative impacts of controlling inflation, especially on enterprises and employment need to be addressed, Hai said at the meeting.

Credit Crunch

Companies are facing a credit crunch after the central bank raised borrowing costs last year to fight inflation, which was then the fastest in Asia. Commercial bank lending fell 0.66 percent through April from the end of 2011, Dau Tu newspaper reported last month.

“If you take a situation where credit growth has been negative, they have to ask some questions,” Victoria Kwakwa, the World Bank’s Vietnam country director, said before the rate cut decision. “It makes sense for them to be concerned about it and to say, did we go too far?”

Short-term lending rates will be capped at 13 percent for some sectors, according to the central bank statement.

The monetary authority will cut its rate cap on dong deposits by two percentage points to 9 percent from June 11, in line with easing inflation, Binh told the National Assembly on June 7.

Vietnam’s inflation rate slowed to 8.34 percent in May from 23.02 percent in August 2011, the lowest in 21 months. The pace of price gains may be 7 percent to 8 percent at year-end, Binh said.

Fuel Costs

Falling crude prices led Vietnam to cut fuel costs for the third time in a month this week, lowering gasoline by 3.5 percent. Diesel, fuel oil and kerosene prices were also reduced.

“Decelerated global commodity prices, especially food, and lower-than-expected domestic demand growth” are helping to keep Vietnamese inflation under control, Australia & New Zealand Banking Group Ltd. (ANZ) said yesterday.

China yesterday unveiled its first reduction in borrowing costs since 2008 to counter what Premier Wen Jiabao has called increasing downward economic pressure. Brazil and India have also cut borrowing costs in recent months.

Still, Vietnam should prioritize containing inflation and be cautious about lowering interest rates further, the International Monetary Fund said on June 4. The country has a history of prematurely loosening policy and the government should be careful not to shift to an expansionary stance too soon, the World Bank said the same day.

Inflation is likely to reverse its slowing trend in the second half, due to moves to liberalize prices of inputs including coal, higher wages for civil servants, and an easing monetary policy, the World Bank said in a report on June 4.

“As the government eases its policy stance, it risks renewing concerns about its commitment to price stability,” Standard & Poor’s said on June 6, as the credit-ratings company raised its outlook on Vietnam’s long-term sovereign credit rating to stable from negative.

To contact Bloomberg News staff for this story: Nguyen Kieu Giang in Hanoi at; Jason Folkmanis in Hanoi at

To contact the editor responsible for this story: Stephanie Phang at

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