Vietnam cuts reference, discount rates

Vietnams central bank on Friday cut its refinancing and discount rates by one percentage point each after the government had urged the bank to boost consumption amid easing inflation. The central bank lowered its refinancing and discount rates to 7 percent and 5 percent but kept its key base rate, which is used as a reference rate by commercial banks to set their lending rate, unchanged at 7 percent.
A central bank directive, obtained by Reuters, gave no reason for the rate cuts. The government earlier this month asked the central bank to "re-consider" its base rate, refinance rate and discount rate in light of easing inflation.
The new rates took effect from Friday. "The rate cuts reflect the central banks monetary easing policy in the economic recession after Vietnam has been able to control inflation," said Duong Thu Huong, general secretary of the Vietnam Banks Association, a state-controlled organisation.
The refinancing rate is the rate at which the central bank lends local currency to commercial banks, while the discount rate is used to buy back bank debt securities. A cut in the refinancing rate will make it cheaper for commercial banks to raise funds.
Vietnams economic growth could slow to 5 percent this year due to the global recession, after annual growth of just 3.1 percent in the first quarter, state-run media quoted Prime Minister Nguyen Tan Dung as saying. The governments forecast is below a projection by the World Bank of 5.5 percent but above a forecast by the International Monetary Fund of 4.75 percent.
Bankers said the central bank on Friday also cut its interest rates on open-market 14-day loans to banks to 6.5 percent from 7.5 percent and quadrupled the daily volume of its offer on the open market to 2 trillion dong.
In the interbank markets, fixings of dong lending rates on most short-term loans remained unchanged, although the rate on 3-month loans rose to 8.18 percent from 8.16 percent on Thursday. March consumer price inflation stood an estimated 11.25 percent from a year ago, the lowest annual rise since November 2007, while prices eased 0.17 percent from February, the government said last month. The World Bank has forecast Vietnams inflation this year at 8 percent, slowing from an annual rise in consumer prices of 19.9 percent last year while the Asian Development Bank expects 4 percent inflation, down from 25 percent in 2008.