Central bank increases benchmark interest rate

HA NOI — The State Bank of Viet Nam increased the prime interest rate by 1 percentage point yesterday to 9 per cent per year, the first increase in the benchmark rate in 11 months.

The move follows the State Bank's announcement yesterday of seven measures to try to cool inflation in the closing months of the year, when consumer demand traditionally rises.

The discount rate was also increased from 6 per cent to 7 per cent, while the refinancing and overnight interbank rates were hiked from 8 per cent to 9 per cent.

The increases, effective immediately, also follow yesterday's announcement from the Government that it would not further devalue the Vietnamese dong in the remaining months of this year.

Since March, when the State Bank began allowing commercial banks to negotiate interest rates with borrowers, the prime rate has no longer governed deposit or lending interest rates of commercial banks. But the central bank continues to regard the prime rate as a tool for governing the direction of monetary policy.

"Even the benchmarks no longer governed commercial interest rates, but the change this time will have a positive impact on the market," the capital manager of a Stated-owned bank in Ha Noi told Viet Nam News on condition of anonymity.

The State Bank has kept the prime rate unchanged at 8 per cent for 11 months, while encouraging commercial banks to lower lending interest rates and increase credit to business – part of the Government's overall drive to reach its economic growth target of at least 6.5 per cent this year.

However, the Government yesterday estimated that the growth target was already likely to be met, so the policy emphasis turned to combating inflation, which hit nearly 10 per cent in October.

The interest hike is expected to help banks offer higher deposit interest rates and draw more money out of circulation and into savings, helping ease inflationary pressures.

Market moves

The simultaneous moves of financial watchdogs on Thursday – with both the National Financial Supervisory Council and the State Bank issuing major policy pronouncements – immediately helped cool down the overheating US dollar and gold markets yesterday, as well as give a boost to the floundering Vietnamese stock market.

The US dollar lost as much as VND650-700 on the black market, falling to an average of about VND20,350-20,650.

"The quick changes in the dollar are spooking speculators," said the owner of a gold shop on Ha Trung Street. "Sales is dominating, and sale volumes are quite large."

On interbank market, banks were trading the dollar yesterday at about VND20,300, down about VND500 from the previous day. However, the leaders of two State-owned banks who wished to remained unnamed said that the banking system was waiting on details of the National Financial Supervisory Council's announcement yesterday that additional dollars would be pumped into the banking system, wanting to know where and when.

"The announcement sounds good, and the immediate market response has been positive," said Asia Commercial Bank deputy director Nguyen Thanh Toai. "But if no action is taken soon, I'm afraid that the dollar may rebound and increase more rapidly."

Trading on the interbank market yesterday continued limited, with moderate volume.

On the non-deliverable forward (NDF) market – a currency futures market – the US dollar yesterday was expected to continue rising by 0.072-2.171 per cent, hitting VND20,825.02 by next month, VND20,675.58 in three months, VND21,203.43 in six months, VND21,646.66 in nine months, and VND22,051.18 by November of next year.

Source: vnagency.com.vn