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SBV unexpectedly slashes basic interest rate to 13%
The State Bank of Vietnam (SBV) this afternoon unexpectedly slashed the basic interest rate from 14% per annum to 13%, to be applied as of tomorrow, October 21.
With the new basic interest rate, the lending interest rates of commercial banks will not exceed 19.5% per annum. Under the current laws, the lending interest rates applied by credit institutions must not be higher than 150% of the basic interest rates.
The 1% cut has also been decided for other types of interest rates, including the recapitalisation, discount and overnight interest rates. The new rates will be 14%, 12% and 14%, respectively.
The central bank has also decided to help banks improve liquidity by raising the interest rates for compulsory reserves by two folds. From tomorrow, October 21, commercial banks will enjoy the interest rate of 10% instead of 5% for the compulsory reserves they make at the central bank.
This is for the third time in the last two months the central bank raised the interest rate on commercial banks’ compulsory reserves.
SBV this afternoon also decided to make payment for the compulsory bonds before they become matured on March 17, 2009. Prior to that, on March 17, 2008, with an aim to limit the volume of cash in circulation to curb inflation, the State Bank of Vietnam issued VND20,300bil ($1,250mil) worth of compulsory bonds. Forty one banks had to purchase the bonds.
The decisions by SBV can be seen as the move to gradually loosen the monetary policies after many months of tightening the monetary policies to serve the fight against inflation.
This is for the first time in the last four years the VND basic interest rate has been slashed. The central bank had raised the basic interest rate five times before, since March 1, 2004. The latest three increases occurred in the last six months, from 8.25% to 8.5%, 12% and then 14%.
Explaining its decisions, SBV said that it aims to implement the Government’s instructions on fighting inflation, minimising the bad impacts of the global financial crisis, stabilising the national economy and ensuring sustainable growth.
With the new decisions, commercial banks will be able to cut lending interest rates, which will help push up investments and production.
Analysts said that the central bank’s decision has truly reflected the current market situation. The interest rates applied by commercial banks have been decreasing considerably to below 16% per annum, much lower than the highest peak of 19.2% per annum seen in June.
The analysts have forecast a banks’ new race in cutting lending interest rates, believing that the rates may drop to 14-15% per annum.
Deputy General Director of a HCM City-based bank, on one hand, said that the lending interest rate decreases will occur as the result of the lowered basic interest rate, on the other hand said that banks will not slash the lending interest rates sharply, or they will face difficulties in capital mobilisation.
VNN
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