The State Bank of Vietnam (SBV), the country’s central bank, has decided to slash policy interest rates for the third time this year by 20–50 basis points amid sluggish credit growth, with immediate effect.

Vietnam's central bank has decided to slash policy interest rates for third time in a year.

As per the decision, interest rates of deposit of required reserves and deposit of required reserves extension in Vietnamese dong (VND) is down by 0.5 percentage points to 0.5% per annum.

Interest rates of the State Treasury of Vietnam and Deposit Insurance of Vietnam at the SBV have now been lowered to 0.8% per annum, a decrease of 0.2 percentage points.

Starting from August 1, interest rates of deposit in VND of the Vietnam Development Bank, Vietnam Bank for Social Policies, People’s Credit Funds, and Macrofinance institutions are cut by 0.2 percentage points to 0.8% per annum.

In the first six months of the year, Vietnam’s credit growth was estimated at 2.8% year-on-year, much lower than the 5.7% rate recorded in the same period last year.

Therefore, lower interest rates of deposit of required reserves and deposit of non-required reserves at the SBV are expected to encourage banks injecting more cash into the economy.

VnExpress cited some experts as saying cutting interest rates does not provide much help for businesses as most are still struggling to meet collateral requirements or find a feasible business strategy in the current pandemic situation.

Experts said financial support is much needed at the moment so that local firms could survive this crisis.

Previously, the SBV had cut its policy rates twice by a combined of 100 – 150 basis points to support the country's economic recovery. The refinancing interest rate now stands at 4.5% per annum, rediscount rate at 3%, overnight interest rate at 5.5% and interest rate via open market operations (OMO) at 3%.

The SBV also lowered the interest rate cap to 4.25% annually for deposits with maturities of one month to less than six months.