Vietnam cuts benchmark rates 3rd time in 4 weeks

 

HANOI: 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 today as part of efforts to prevent an economic slowdown.

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 yesterday. It has already cut rates twice since October 21.

The base rate would be cut to 11 per cent from 12 per cent 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 per cent from 11 per cent and the refinancing rate would drop to 12 per cent from 13 per cent. The central bank uses the refinancing rate to lend to banks.

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

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

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

State-run BIDV, Vietnam’s second-largest bank, said it was slashing dong lending rates by about 1 percentage point yesterday in an effort to help businesses.

The central bank raised the base rate three times between February and June to contain inflation, which approached an annual rate of 30 per cent before easing to an estimated annual growth of 26.7 per cent in October from 27.9 per cent in September. - Reuters