The State Bank of Vietnam, the country’s central bank, has decided to cut its policy rates by 1%, effective today [March 15].

The State Bank of Vietnam. Source: SBV

Overnight loans and rediscounts for interbank electronic payments, as well as loans to cover capital shortfalls in payment settlements between credit institutions and the State Bank, are eligible for interest rate cuts.

In addition, the maximum interest rate for short-term loans in VND for priority sectors was lowered from 5.5% to 5% per annum, and for people's credit funds and microfinance institutions from 6.5% to 6% per annum.

However, the SBV noted that this adjustment does not affect the maximum interest rate on deposits. This is the first time in the last two years that the central bank has decided to lower official interest rates.

In the previous adjustment in September last year, other interest rates, including the maximum deposit rate, were raised by 0.3% to 1% per annum.

According to the SBV, the reduction in official interest rates is a crucial step towards lowering market interest rates in the near future.

The move is seen as a signal to commercial banks to lower their respective lending rates, which will help alleviate the challenges faced by businesses and the economy in general.

The SBV also pointed out that the stable money market and ample liquidity in the banking system are able to meet the payment needs of the economy.

Since January this year, the SBV has been buying foreign currency from banks to replenish foreign exchange reserves and increase the circulation of the Vietnamese dong in the economy.

As of March 13, the central exchange rate stood at VND23.638 per US dollar, an increase of 0.1% compared to the end of last year.

The average exchange rate in the interbank market is about VND 23,555, which is a decrease of 0.1% compared to the end of 2022, while the current buy/sell rate of commercial banks remains the same as at the end of 2022, as in Vietcombank, which is 23,400 - 23,740 VND.

However, the SBV indicated that it remains cautious in the face of inflationary pressures, as the growth rate of the Consumer Price Index (CPI) in the first two months approached the target level of 4.5%, while global inflation is expected to remain high.

In recent days, the world's major central banks have continued to pursue a restrictive monetary policy, which implies rising interest rates, amid the recent closure of Silicon Valley Bank in the US.