Vietnam cuts key rates 3rd time in 2020 to boost growth

     Vietnam's central bank cut its key interest rates for the third time this year to further stimulate economic activity after growth in the third quarter accelerated to an annual 2.62 percent from 0.39 percent in the second quarter, the weakest pace in at least 30 years.

     The State Bank of Vietnam (SBV) cut its refinancing rate by another 50 basis points to 4.0 percent, the rediscount rate to 2.50 percent from 3.0 percent, and the overnight rate for inter-bank payments and clearing transactions between commercial banks and SBV to 5.0 percent.

     It also lowered the maximum interest rate on dong-denominated deposits from one to six months by 25 basis points to 4.0 percent but retained the rate on deposits of less than one month at 0.2 percent.

     Since September 2019, when SBV cut its rate for the first time since July 2017 in response to slowing global growth, the key rates have been cut by 225 basis points.

     "In order to continue to remove the difficulties for the economy, the SBV has decided on new adjustments of the key interest rates, which take effect from October 1, 2020," the bank said in a statement issued on Sept. 30.

      As several countries in Asia, Vietnam has been relatively successful in containing the COVID-19 pandemic and economic growth in the third quarter was boosted by a recovery in exports and manufacturing, with higher public investment and household spending expected to boost growth further in the fourth quarter.

     On Monday Vietnam's general statistics office said growth in the first nine months of this year was 2.12 percent year-on-year as exports rose 4.2 percent, boosted by an annual 18 percent jump in September.

     The head of the statistics office was quoted by Bloomberg as saying full-year growth of above 2.0 percent was quite possible. In 2019 Vietnam's economy grew 7.02 percent.

      Vietnam's inflation rate eased to 2.98 percent in September from 3.18 percent in August while the dong has bounced back after tumbling in March to trade at 23,182 to the U.S. dollar today, largely unchanged since the start of the year.

    The State Bank of Vietnam issued the following statement:

"SBV continues to cut key interest rates 

Since the beginning of this year, implementing the directions and policy of the National Assembly, the Government and the Prime Minister on measures and policies to remove the difficulties of the businesses and the people, ensuring the social security in response to the Covid-19 pandemic, the State Bank of Vietnam (SBV) has synchronously regulated the monetary policy tools to control the inflation, maintain the stability of the macro-economy and the money market, reduce the common interest rates to support the economic recovery. The economic growth rate for the nine months of 2020 was estimated at 2.12%; the inflation was controlled with the 9-months’ average at 3.85%. In order to continue to remove the difficulties for the economy, the SBV has decided on new adjustments of the key interest rates, which take effect from October 1, 2020, specifically as follows:

1. Decision No. 1728/QD-NHNN dated September 30, 2020 on the refinancing interest rate, the rediscounting interest rate, the overnight rate for the inter-bank electronic payments, and the interest rate of loans to finance short-term balances in the clearing transactions between the SBV and the commercial banks. Accordingly, the refinancing rate is cut down from 4.5% to 4.0% p.a.; the rediscounting rate is reduced from 3.0% to 2.5% p.a.; the overnight rate for the inter-bank electronic payments and the interest rate of loans to finance short-term balances in the clearing transactions between the SBV and the commercial banks is lowered from 5.5% to 5.0% p.a.

2. The interest rate of bids of valuable papers through the open market operations is cut down from 3.0% to 2.5% p.a.

3. Decision No. 1729/QD-NHNN dated September 30, 2020 stipulating the caps for VND mobilization interest rates applied for organizations’ and individuals’ deposits at the credit institutions and the foreign bank branches as stipulated in Circular No. 07/2014/TT-NHNN dated March 17, 2014. Accordingly, the maximum VND mobilization interest rate for demand and below 1-month terms is maintained at 0.2% p.a.; the maximum VND mobilization interest rate for time deposits of 1-month to below 6–month terms decreases from 4.25% p.a. to 4.0% p.a.; the maximum VND mobilization interest rate for time deposits of 1-month to below 6–month terms at the People’s Credit Funds and the Micro Finance Institutions is lowered from 4.75% p.a. to 4. 5% p.a; the interest rate for time deposits of 6-month plus term will be determined by each credit institution on the basis of market capital supply and demand.

4. Decision No. 1730/QD-NHNN dated September 30, 2020 on the cap for VND short-term lending rate charged by the credit institutions and the foreign bank branches to borrowers to meet the capital demand in a number of priority fields and sectors in accordance with Circular No. 39/2016/TT-NHNN dated December 30, 2016, which is reduced from 5.0% p.a. to 4.5% p.a.; the maximum VND short-term lending rate applied for the People’s Credit Funds and the Micro Finance Institutions for the same fields and sectors is lowered from 6.0% p.a. to 5.5% p.a."

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