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December 20, 2008

Vietnam Interest Rate Cuts:
Central bank to further loosen monetary policy

Vietnam's central bank said on Friday it will slash its key interest rates by 150 basis points and lower banks' compulsory reserve ratio from next week, the fifth set of monetary loosening since October, reported Reuters.

A year-end rate cut had been widely expected since Vietnam has been scrambling to avoid a severe economic slump next year, and some in the market said in recent days they thought the central bank might lop off as much as 300 basis points.

The State Bank of Vietnam will also cut the refinance rate to 9.5 percent from 11 percent, the discount rate to 7.5 percent from 9 percent, and lower banks' reserve ratio by 100 basis points, it said in a statement.

"The objective of the monetary measures taken this time is to create conducive conditions for businesses to access credit at banks and to help banks expand lending to exporters, importers, businesses and investment projects that prove to be effective and able to pay back the loans in time," the central bank said.

New dong loan rates would be capped at 12.75 percent from next Monday, compared with 15 percent now and nearly halved from 21 percent in June, the central bank said.

The central bank has slashed the base rate by 550 basis points since late October. The Southeast Asian country battled double-digit inflation and a widening trade deficit for much of the year by tightening monetary policy, but with inflation easing officials have trained their sights on the dampening effect of the global credit crisis on growth.

Buffeted by the overheating crisis earlier in the year and economic slowdown that followed, the Vietnamese stock market has suffered, tumbling 70 percent this year after having gained more than 20 percent in 2007.

"The cut is in the upper end of our estimate of 100-200 basis points reduction, which should give the stock market a good boost before year-end," said Nguyen Minh Duc, Head of Institutional Investors Department at Thang Long Securities in Hanoi. Anticipating the rate cut, some commercial banks had already made adjustments.

On Friday, the country's biggest listed bank Asia Commercial Bank ACB.HN said it had slashed the yield on its 12-months dong deposits by 310 basis points to 6.9 percent.

Sacombank STB.HM said effective from Friday the yield on its 12-month dong deposits would be as low as 6.63 percent, from as high as 10 percent previously.

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