SBV continues to raise refinancing rate

The State Bank of Vietnam last week announced in a report on its website that it raised a key interest rate for the third time in less than two months this year.

View at the ShinhanVina Bank in Ho Chi Minh City. The central bank raised the refinancing rate for third time less than two months this year (Photo:Minh Tri)

The refinancing rate, which sets the cost of commercial lenders' borrowings from the central bank, was hiked to 13 percent from 12 percent, the State Bank of Vietnam said in the report. It said the rise will be effective from April 1.

SBV did not give a reason for its decision but economists say the government has been tightening monetary policy to fight inflation, which it has called its number-one priority, according to AFP.

Prior to a series of rate hikes that began in mid-February the refinancing rate was 9 percent. The discount rate, which applies to more urgent borrowing, is unchanged at 12 percent while the base rate remains 9 percent.

The move is aimed at restricting large-cap banks from borrowing from the central bank to loan other lenders with higher rates to take profits, financial experts noticed.

The increasing refinancing rate also leaded commercial banks with small capitalization to focus on reducing credit growth and recovering debts in order to meet the lending demand.
 
“Inflation is accelerating on the increase in gasoline price and imported material costs. Therefore, it is necessary to strictly tighten the monetary policy. We have to avoid making a similar mistake in previous years,” said Dr. Tran Du Lich, member of the National Financial Supervisory Commission.

“Earlier, the policy was loosened as banks and businesses said the high interest rates affected their business, making inflation rally strongly again,” Lich said.

Many lenders said it is inappropriate to keep the 14 percent rate cap on dong deposits as the refinancing rate moved up to 13 percent per annum. They said the actual depositing rate reached 17-18 percent per annum through negotiation.

However, Duong Thu Huong, general secretary of the Vietnam Banks Association, said the rate cap helped keeping banks’ interest rate stable.

“The rate cap of 14 percent per annum on dong deposits shows that Vietnam is among the countries setting the highest depositing rate in the world. Therefore, we cannot raise the cap further. Despite some banks still ignoring the cap, it kept banks from racing to raise the interest rates again,” Huong said.

Economic stabilization, rather than growth, has become the government's main focus as it grapples with a complicated mix of challenges including a struggling currency and a trade deficit.

Last Thursday the government said it aims to slash public investment by more than US$2 billion this year as part of the stabilization measures.

Officials also announced almost $150 million in assistance for low-income earners trying to cope with inflation that was expected to hit a two-year high of 13.9 percent year-on-year in March, according to official estimates.

By Diu Ngan – Translated by Vu Minh

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