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Vietnam seeks low market lending rates after rare rate hike

Tan KW
Publish date: Sat, 24 Sep 2022, 10:15 PM

HANOI, Sept 24 : Vietnam’s central bank will urge commercial banks to find ways to keep lending costs low, even after it delivered a rare monetary policy tightening to curb inflation and stabilize the currency.

The refinance rate and deposit rate were each increased by 100 basis points to 5% and 3.5%, respectively, effective Friday (Sept 23), according to the State Bank of Vietnam (SBV) decision announced to the media.

The interbank overnight lending rate and the dong deposit rate cap were also adjusted upward, the central bank said.

"The SBV will convince banks to advance their technologies, increase governance efficiency, cutting costs to keep lending interest rates stable, and even consider some reductions in their commercial lending interest rates in some priority business areas,” it said in a statement accompanying a briefing in Hanoi on Friday.

The central bank will continue to manage the dong in a flexible manner and appropriately use other monetary policies to stabilize the money market, curbing inflation and maintaining macro stability, it said in a separate statement, without elaborating on what steps it may take.

SBV’s rate announcement on Thursday came hours after Prime Minister Pham Minh Chinh asked the central bank to consider raising interest rates to support the dong, which fell for a ninth straight day to 23,712 per dollar on Thursday, the lowest since at least 1993, according to data compiled by Bloomberg.

Dong Rate The central bank set the dong reference rate at 23,324 per dollar on Friday, the weakest since at least 2005. Vietnam allows the currency to trade at 3% on either side of the rate.

Vietnam PM Seeks Policy Rate Hike Amid Dong Weakness The SBV’s move was "in line with the trend of monetary tightening taking place globally; the currency has been weakening and inflation is under pressure,” Phung Trung Kien, founder of Vietnam Holdings Inc., an investment consultant and asset management company said on Thursday.

"All this has put more pressure on the central bank to hike this time.”

The SBV, which had been mostly loosening its policy in the past decade, last moved in September 2020 when it cut the rates to support the economy through the pandemic.

The central bank tightening would help the dong "gain ground” against the dollar, Quynh Cao, director of institutional sales at SSI Securities Corp. wrote in a note Thursday.

The central bank "can also intervene by selling more dollars to help the dong,” Can Van Luc, chief economist at Bank for Investment and Development of Vietnam, said before the rate announcement.

 - Bloomberg

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