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November 21, 2008

Vietnam trims dong rates again
Vietnam's central bank said it will cut three benchmark dong interest rates, its third rate cut in four weeks, and lower bank reserve requirements from Friday as part of efforts to prevent an economic slowdown, reported Reuters.

The Southeast Asian country has battled double-digit inflation and a widening trade deficit for much of the year by tightening monetary policy, but officials appear increasingly concerned the global credit crisis could drag down growth.

"The rate cut and compulsory reserves reduction are aimed at actively preventing the negative impact of the global financial crisis and economic recession," the State Bank of Vietnam said in a statement on Thursday. It has already cut rates twice since Oct. 21.

The base rate would be cut to 11 percent from 12 percent and the central bank also lowered the compulsory reserve on banks' dong deposits by two percentage points.

The discount rate used by the central bank to buy debt from banks would be cut to 10 percent from 11 percent and the refinancing rate would drop to 12 percent from 13 percent. The central bank uses the refinancing rate to lend to banks.

Last month, Hanoi estimated the economy would grow 6.7 percent in 2008, down from the government's projection of annual growth as high as 9 percent.

In addition, banks would be required from Friday to set aside 8 percent on non-term dong deposits and those with terms of less than 12 months instead of 10 percent now, the central bank said.

The ratio for compulsory reserves on deposits with maturities of 12 months or longer would be lowered to 3 percent from 4 percent. Lower reserve requirements against banks' deposits help them cut fundraising costs and could lead to more rate cuts.

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