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Prime rate cut to help enterprises   2008-10-22 - Viet Nam News

The State Bank of Viet Nam (SBV) cut the prime interest rate by 1 percentage point yesterday to 13 per cent in an effort to improve the lending environment for capital-troubled companies.

Customers at the Maritime Bank in Ha Noi. A new prime interest rate cut aims to help cash-strapped companies.

Effective today the refinancing rate was decreased to 14 per cent from 15 per cent and the discount rate was cut by 1 percentage point to 12 per cent. Overnight interest rates for electronic and compensation payments on the inter-bank market is down to 14 per cent from 15 per cent.

[The central bank had consistently increased the prime rate from 8.25 per cent to 14 per cent over the course of the year. Yesterday’s decision was the first in the opposite direction.]

The central bank also doubled interest rates to 10 per cent annually for compulsory commercial bank reserves and decided to pay off treasury notes worth VND20.3 trillion (US$1.22 billion) issued to banks in March for local banks.

These simultaneous decisions were designed to make more capital available to commercial banks to increase liquidity and cut lending rates. As a result local cash-strapped companies will have the opportunity to get bank loans, in order to maintain in business and promote investment, the SBV stated in its press release yesterday.

Top policy makers are concerned that the difficulties faced by local companies may badly affect this year’s 7 per cent economic growth target.

"The decision to cut lending rates is a good one. I estimate that the lending rate can be cut as much as 2.5 per cent yearly. Capital-troubled enterprises will have more opportunities to survive," Vu Duy Thai, chairman of Ha Noi Industrial and Trade Association told Viet Nam News.

Nguyen Hoa Binh, chairman of Vietcombank, told Viet Nam News that with these decisions, they would have enough money to allow them to consider a further cut in lending rates.

The Bank for Agriculture and Rural Development (Agribank) yesterday decided to cut its lending rate by about 1 percentage point to 16.5 per cent annually for agriculture and fishery household enterprises and to 16.8 per cent for long-term bank exporting customers.

"We will consider rate cuts to set standard rates on a case-by-case basis, depending on the feasibility of the proposal," said Nguyen Thanh Toai, deputy general director of Asia Commercial Bank.

With these moves, local policy makers are likely to signal a somewhat looser monetary policy compared to the previous 10 months of keeping it tight against economic turbulence worldwide. This means more money will go into circulation.

SBV Governor Nguyen Van Giau was not available for comment yesterday. However, in its press release, the central bank warned banks to be cautious in managing capital, and said banks should prepare risk prevention measures against the effects of global financial turmoil.

Measures to curb inflation by the Government have generated positive results. The General Statistics Office reported the consumer price index in September rose just 0.18 per cent, the lowest monthly increase since the beginning of the year.

September’s trade deficit stood at $500 million, the third consecutive month that it remained under $1 billion. The value of the nation’s exports in the first nine months reached $48.6 billion, an increase of 39 per cent against the same period last year.

The Government’s efforts to stabilise the economy are aimed at sustaining growth, controlling inflation, increasing the attractiveness of dong-denominated deposits and improving the balance of payments. Part of the new strategy is to control credit and demand while leaving interest rates at sustainable levels.

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