Central bank cuts interest rates

The State Bank of Vietnam (SBV) has announced two separate decisions further lowering key interest rates, effective May 25. This was the third rate reduction in the central bank’s monetary easing cycle since March to boost slackening economic activity and consumption.

As stated by the SBV’s Decision No. 950 dated May 23, the interest rates for overnight interbank electronic payments and compensatory lending for the capital shortfall in offset payments by the central bank to commercial banks fell from 6% to 5.5% per year.

The refinancing interest rate was down from 5.5% to 5.0% per year, while the rediscount interest rate remained unchanged at 3.5% per year.

The SBV’s second decision, Decision No. 951 on May 23, set the maximum interest rate for Vietnamese dong deposits of organizations and individuals at commercial banks, as stipulated in Circular No. 07 dated March 17, 2014. Accordingly, the maximum interest rate of non-term and term deposits with tenors of less than one month was unchanged at 0.5% per year. The maximum interest rate of deposits with terms ranging from one month to less than six months dropped from 5.5% to 5.0% per year.

However, the maximum interest rate of Vietnamese dong deposits at the People’s Credit Funds and microfinance institutions was cut from 6.0% to 5.5%. The interest rate of deposits with terms of six months or longer was determined by commercial banks based on supply and demand on the market.

The central bank’s latest interest rate cut was designed to fuel economic growth, support liquidity in the interbank market, and make borrowing and lending easier in the banking system, thus encouraging investment and consumption.