Vietnam cuts rates to support growth

A worker fixes a steel structure at a building construction site in Hanoi on August 15 (Reuters photo)

HANOI: Vietnam’s central bank said on Friday it was lowering several interest rates to increase liquidity and support economic growth, which the country hopes to stay close to 7% this year.

The annual refinancing rate, the rediscount rate, the electronic overnight interbank rate and the rate on loans intended to compensate for the lack of capital in the clearance between the central bank and national banks would each be lowered by 0.25. percentage point as of Monday, the State Bank of Vietnam (SBV). said in a statement.

He said the rate cuts, the first since October 2017, would help increase bank liquidity to provide credit, stabilize the economy and the foreign exchange market, and spur economic growth.

Vietnam has been one of the fastest growing developing countries. For 2018, it recorded growth of 7.08%, the fastest in 11 years.

He set a target of 6.6-6.8% for this year and reported an expansion of 6.71% in the first quarter and 6.82% in the second.

The government said the country is expected to grow by at least 6.9% in the current quarter to ensure the target for the full year is met.

Foreign investment has helped speed up Vietnam’s growth rate, which economists say has increased this year as some investors relocate production from China due to the Sino-US trade war.

“The rate cuts will help spur growth and boost exports, especially in the context of the US-China trade war,” said Nguyen Tri Hieu, Hanoi-based banking analyst. “However, this move could lead to an increase in inflation in the country.”

In August, Vietnam’s consumer price index rose 2.26% from the previous year. The government aims to keep inflation below 4% this year.

According to the central bank, the refinancing rate will be reduced to 6.0% from 6.25%, the new rediscount rate will be reduced to 4.25% and the loan rate to compensate for the lack of capital in the clearance between the central bank and national banks will be 7.0%.

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