Vietnam’s central bank said on Monday it was slashing a key policy interest rate for the first time in nearly three years after double-digit inflation eased in the country.
The State Bank of Vietnam will cut the refinancing rate — which it charges on its loans to commercial banks — to 14 per cent from 15 per cent with effect from Tuesday, it said in a statement on its website. The central bank last cut the rate, one of several monetary policy tools, in April 2009, to seven per cent.
The government is targeting economic growth of six percent for 2012, up slightly from 2011, and has said it aims to bring inflation into single digits. Last year, Vietnam refocused efforts from economic growth to stabilisation to deal with price rises and other challenges, including dwindling foreign reserves, a yawning trade deficit and downward pressure on the dong currency.
Since then, it has repeatedly hiked rates, most recently in October 2011, in a bid to rein in soaring inflation, which peaked at an annual rate of 23 per cent in August of last year.
Inflation has eased over the last six months, reaching an 11-month low of 16.44 per cent year-on-year in February, from 17.27 percent in January.
“This is a test for the economy — how it plays out will affect future reductions in the interest rate,” Vu Dinh Anh, deputy director of the state-backed Institute of Economy and Finance, said.
The most pressing problem for Vietnam now is to avoid a situation of slow economic growth coupled with high inflation, he said, warning that price pressures were likely to grow in March and April.
“(After that) we will be able to see whether we should increase or decrease interest rates, and how we should adjust monetary policy to cope with inflation,” he said.
The central bank also announced on Monday that the discount rate would be cut to 12 per cent from 13 percent. “Easing monetary policy will help the economy achieve the government’s six
percent GDP (gross domestic product) growth target this year,” Hai Pham, an economist at ANZ in Singapore, wrote in a recent note to clients.