Policy rates cut to support economic recovery

Th an Hang

On 12 May the State Bank of Vietnam reduced its policy rates by up to 0.5 percentage points for the second time in the past two months.

Headquarters of the State Bank of Vietnam in Hanoi

Given the increasingly complicated developments of the COVID-19 pandemic which are negatively impacting the global economy, foreign governments and central banks have cut their policy rates as well as taking economic stimulus measures on a large scale. The State Bank of Vietnam decided to adjust rates, aiming to aid the country's economic recovery with effect from 13 May.

Particularly, the refinance rate was cut from 5.0 percent per year to 4.5 percent and the rediscount rate from 3.5 percent to 3 percent. Overnight lending rates for electronic interbank payments and loans to finance shortterm balances in clearing transactions between the central bank and domestic banks were cut from 6.0 percent to 5.5 percent per year. The offering rate for valuable papers through the open market operations was reduced from 3.5 percent to 3.0 percent per year.

The central bank also issued a decision on the maximum rates for deposits in Vietnamese dong at credit institutions and foreign bank branches. Accordingly, the maximum rates for demand deposits and those with terms of less than one month were cut from 0.5 percent per year to 0.2 percent. For deposits with terms from one month to less than six months, the rate was cut from 4.75 percent to 4.25 percent; and from 5.25 percent to 4.75 percent for deposits with terms of one month to less than six months at people’s credit funds and micro-finance institutions.

The central bank also reduced the lending rates for economic sectors regulated in Circular 39/2016/TTNHNN. The maximum lending rate for short-term loans in Vietnamese dong was down from 5.5 percent per year to 5 percent, while the rate for shortterm loans provided by people’s credit funds and micro-finance institutions were cut from 6.5 percent to 6 percent.

Mr. Pham Thanh Ha, Director General of the Monetary Policy Department, State Bank of Vietnam said, “The State Bank’s decision on reducing the rates as well as requesting credit institutions to cut costs and reduce profits will facilitate credit institutions to reduce lending rates, contributing to easing difficulties for the economy.”