Vietnam's central bank lowers deposit rate caps for second time in 2023

The State Bank of Vietnam (SBV) will lower the ceiling interest rates on dong-denominated deposits by another 0.5 percentage points for terms below six months from Thursday, to support economic growth.

Under the central bank’s decision announced late Tuesday, the deposit interest caps will be brought down from 5.5% to 5% per year for terms from one month to below six months.

The maximum interest rate for demand deposits and deposits of less than one month will remain at 0.5% per year.

Meanwhile, the ceiling rate for deposits in Vietnamese dong at people's credit funds and microfinance institutions will be cut from 6% to 5.5% per year.

The rate for deposits of six months or more will be set by banks on the basis of market capital supply and demand.

This is the second time since the year beginning the SBV has reduced the ceiling deposit rates. Previously, in early April, the ceiling interest rate for 1-6 month deposits was adjusted down from 6% to 5.5%.

The SBV will also lower its policy interest rates, the third cut so far this year, following those on March 15 and April 3.

Accordingly, the overnight electronic interbank rate and the interest rate for loans to offset capital shortfalls in clearance between the central bank and domestic banks will decrease from 6% to 5.5% a year, while the refinancing rate will be reduced from 5.5% to 5%. However, the rediscount rate will remain unchanged at 3.5% a year.

The SBV said reducing the ceiling deposit and policy interest rates is "an important step, paving the way for further rate cuts in the coming time". This is a signal for commercial banks to continue lowering their lending rates, it added.

The move came in the context of domestic economic and business difficulties. The country's economy expanded only 3.32% in the first quarter of the year, as compared to 5.92% in Q4/2022. Bond and real estate market woes have made it tough for companies to source capital, while industrial production, export and FDI attraction were on a decline.

In a late April meeting, Prime Minister Pham Minh Chinh asked state-run commercial banks to take every measure to reduce interest rates in order to help people and businesses gain easier access to capital.

Recently, domestic banks have reduced their deposit interest rates in line with the central bank’s instructions. However, loan interest rates remain high due to high demand for capital, rising interest rates on the global market, and credit institutions facing problems related to debt collection, according to the SBV.