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Vietnam c.bank increases refinancing rate to 15% from 14%
Vietnam’s central bank increased its refinancing rate for the first time since May to 15 percent from 14 percent, as the country tries to fight Asia’s fastest inflation and stabilize its currency.
The move will be effective Oct. 10, the central bank in Hanoi said in a statement on its website yesterday. It also raised overnight interest rates on electronic transactions to 16 percent from 14 percent and cut the rate on dollar deposits that exceed the compulsory reserve of credit institutions at the central bank to 0.05 percent from 0.1 percent.
Vietnam is struggling to regain investor confidence hurt by inflation that has exceeded 20 percent. The International Monetary Fund said on Oct. 4 that the central bank may undermine efforts to stabilize the economy if it prematurely eases monetary policy and the government said last month it will further restrain lending growth.
The central bank also cut dollar deposit rates of state Treasury at the central bank to 0.05 percent from 0.1 percent, effective from Oct. 10.
The State Bank of Vietnam has increased the repurchase, refinancing and discount rates to stem credit growth and slow price gains as the government tries to stabilize the economy. The central bank raised the repurchase rate in nine steps from 7 percent at the start of November last year to 15 percent in May 2011, before cutting it in July to 14 percent.
‘Hard Work’
Consumer prices in Vietnam climbed 22.42 percent in September from a year earlier, easing from 23.02 percent in August, according to figures released by the General Statistics Office on Sept. 24. This is also the fastest pace among 17 Asian economies tracked by Bloomberg.
The government should not cut interest rates too soon as that may raise questions about its commitment to fighting inflation, the IMF told a meeting in Hanoi last month attended by Prime Minister Nguyen Tan Dung.
“The risk is that all the hard work they’ve done this year in trying to re-establish their stabilization credentials and to try to convince the population that they have the discipline needed to push through with the macro stabilization program gets undone,” Benedict Bingham, the IMF’s senior resident representative in Vietnam, said on Oct. 4.
Vietnam’s government has also struggled to steady the dong and rebuild its foreign reserves while sustaining the pace of economic expansion. Gross domestic product may rise 5.8 percent in 2011, the slowest pace since 2009, Asian Development Bank data show. The economy, a production hub for companies from Intel Corporation (INTC) to Honda Motor Company, expanded 6.8 percent in 2010.
bloomberg
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