Central bank cuts interest rates to buffer COVID-19 impact

• Central bank aims to keep inflation below 4 percent again
• Capital funneled into priority fields: central bank

Headquarters of the State Bank of Vietnam. (Photo: SBV)

The State Bank of Vietnam (SBV) will cut its policy rates starting from March 17 in an attempt to support the economy which has been hurt by the COVID-19 outbreak.

The central bank reduced the benchmark refinance rate to 5 percent from 6 percent and the discount rate to 3.4 percent from 4 percent, it said in a statement released on March 16.

The overnight lending rate in the inter-bank market was lowered to 6 percent from 7 percent and the open-market-operation (OMO) rate, to 3.5 percent from 4 percent.

The bank also reduced the caps on the interest rate of Vietnamese Dong-denominated deposits and loans by 0.25 – 0.5 percentage points, depending on the maturities.

The COVID-19 pandemic is evolving complicatedly, leaving negative impact on the global economy, it said, citing the fact that to prevent recession, many foreign governments have adopted economic stimulus policies, one of which is policy rate cuts made by central banks. For example, the US Federal Reserve has slashed its interest rates to 0 – 0.25 percent to improve the market’s liquidity.

In a meeting last week, SBV Deputy Governor Dao Minh Tu said the reduction of the benchmark interest rate is a solution to help credit institutions with abundant liquidity, thus putting them in a better position to support affected businesses.

The central bank made the last interest rate cut by 0.25 percentage point in September last year.