Vietnam’s solid macro-economic base has created room for the State Bank of Vietnam (SBV), the country’s central bank, to maneuver its monetary policy and further cut the benchmark interest rates, according to Pham Thanh Ha, head of the SBV’s Monetary Policy Department.

Pham Thanh Ha, head of the SBV’s Monetary Policy Department. Source: SBV.

The SBV’s decision to adjust the policy rates is based on the actual situation of the global financial markets, where major central banks have eased their respective monetary polices and help economies avoid recession, Ha told the SBV’s portal on May 13.

“The SBV has taken into consideration macro-economic factors and inflationary pressure before making proceeding to lower interest rates,” said Ha.

He went on to say that the monetary and foreign exchange markets remain stable while inflation continues to stay under control.

The SBV is committed to ensuring liquidity for credit institutions, which serve as a key channel in providing capital for the economy, he said, adding lower policy rates would help commercial banks cut interest rates in a more sustainable way, which in turn contribute significantly to economic recovery.

In the coming time, the SBV would continue to closely monitor the macro-economic conditions, especially the global financial market to ensure proper and flexible management of the monetary policy, Ha stressed.

After cutting the policy rates by 50 – 100 basis points in March, the SBV on May 12 further slashed the rates by 50 basis points. Accordingly, the refinancing interest rate is down from 5% per annum to 4.5%, rediscount rate from 3.5% to 3%, overnight interest rate from 6% to 5.5% and interest rate via open market operation (OMO) from 3.5% to 3%. 

The SBV also lowered the interest rate cap to 4.25% annually from 4.75% for deposits with maturities of one month to less than six months.

Meanwhile, the SBV ordered banks to lower the maximum lending rate for short-term loans to 5% from 5.5%, with the aim of helping companies operating in the fields of agriculture, high-tech industries and exports, among others. Similarly, that rate at people’s credit funds and micro finance services is down from 6.5% to 6%.

The deposit rate for maturities of over six months is subject to each credit institution’s decision on the basis of supply – demand.