Central bank cuts interest rate to aid economy

MInH naM

The headquarters of the State Bank of Vietnam in Hanoi, Vietnam

The State Bank of Vietnam (SBV) has cut the benchmark interest rate effective from 1 October 2020 to support the national economy amid difficulties posed by the Covid-19 pandemic.

The refinancing interest rate has been cut from 4.5 percent to 4 percent per annum while the rediscount interest rate has been adjusted to 2.5 percent from 3 percent.

The overnight electronic interbank rate and rate of loans to offset the capital shortage in clearance between the SBV and credit institutions have been lowered to 5 percent annually from 5.5 percent. The central bank also decided to cut the interest rate of bids of valuable papers through open market operations from 3 percent to 2.5 percent.

Regarding the maximum interest rate for deposits in Vietnamese dong by organisations and individuals at credit institutions and foreign bank branches, the maximum interest rate applicable to demand deposits and those of less than one month is 0.2 percent per annum.

The maximum interest rate for deposits with terms from one month to less than six months will fall to 4 percent per annum from 4.25 percent.

The maximum rate for deposits with terms of one month to less than six months at people’s credit funds and microfinance institutions will be cut to 4.5 percent per annum from 4.75 percent, while interest rates on deposits with a term of six months or more will be determined by credit institutions based on market capital supply and demand.

Notably, loans to borrowers in several regulated fields and economic sectors have been cut to 4.5 percent per annum from 5 percent. The maximum short-term lending interest rate in VND at people’s credit funds and microfinance organisations for these capital needs is now down from 6 percent per annum to 5.5 percent.

Since the beginning of this year the State Bank of Vietnam has synchronously regulated monetary policy tools to control inflation, maintain the stability of the macroeconomy and the money market and reduce common interest rates to support economic recovery. These measures are in line with the directions and policy of the National Assembly, the government and the Prime Minister aimed at supporting businesses and individuals and ensuring social security in response to the Covid-19 pandemic.

The State Bank of Vietnam is one of the central banks making the largest policy rate cuts in the region. The lending and deposit rates of credit institutions also followed suit, with the short-term VND lending rate applicable to a number of priority areas reduced to 4.5 percent p.a.