State Bank cuts policy rates by 50 basis points to fuel growth

The State Bank of Vietnam (SBV) will lower its policy interest rates by 0.5 percentage points from April 3, the second cut within one month, to support growth amid global economic headwinds.

The fresh move puts the refinance rate at 5.5%, while the discount rate remains unchanged at 3.5%, as does the overnight interbank rate at 6%. From Monday, the ceiling interest rates on dong-denominated deposits will be cut by 0.5 percentage points to between 0.5% and 6.0%, depending on the terms.

The SBV explained on Friday that Vietnam’s economic growth in the first quarter of this year was lower than in previous years, but domestic inflation is under control.

In the first two months of the year, the SBV kept policy interest rates unchanged to stabilize the market, amid continuously rising global interest rates and high inflation pressure.

In mid-March, based on developments in the domestic economy, the regulator revised down some policy interest rates by 1 percentage point for the first time in two years and asked commercial banks to further reduce deposit rates.

SBV Deputy Governor Dao Minh Tu said that by March 28, credit across the whole economy had increased by 2.06% compared to the end of 2022, and up 11.17% year-on-year. Meanwhile, bank credit growth for the whole year is set at 14-15%.

He attributed the low credit growth in Q1 to the global economic slowdown that resulted in fewer orders and suspended or narrowed production, affecting capital demand.

"After working with associations and businesses, we acknowledge that the main reason for the low credit growth in the first months of the year was weak demand," Tu added.

At a seminar titled “Unleashing capital flows into production and business" on Thursday, many businesses reported that they are facing huge difficulties amid the economic gloom.

Chairman of the Ho Chi Minh City Business Association (HUBA) Nguyen Ngoc Hoa said that key export-oriented manufacturing industries like garments, seafood, and wood reported record-low growth, along with the "frozen" real estate market. Several steel and cement companies have also halted up to 90% of their operations.

"Businesses are trying to maintain operations in the context of reduced demand, so they have no need for loans,” he said, expressing their urgent desire for debt rescheduling and interest rate cuts from banks.

The World Bank on Friday revised downwards its GDP forecast for Vietnam to 6.3% this year from 6.7%. The Southeast Asian country’s economic growth slowed to 3.32% in the first quarter from 5.92% in the last quarter of 2022.

Singapore’s United Overseas Bank also updated its 2023 forecast for Vietnam’s economy on Friday, placing it at 6%, down from the 6.6% as previously forecast.