Vietnam aims to cut bank lending rates: report

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Vietnam's central bank aims to get commercial bank lending rates down to between 17 percent and 19 percent, perhaps from next month, its new governor was quoted as saying in an online report, which helped lift stock prices.

 Dong rates averaged 18.64 percent in July, with loans for the agricultural and export sectors at 16-21 percent, other production and business activities at 18-22 percent and non-manufacturing sectors at 20-25 percent, the central bank said in a monthly report on Wednesday.

 The State Bank of Vietnam will work with banks to try to get rates down from mid-September, Governor Nguyen Van Binh was quoted as saying in the report posted on news website NDHMoney (ndhmoney.vn).

 High lending rates have been a major problem for businesses, but the authorities have had to tighten monetary policy significantly this year in the face of soaring inflation, which exceeded 22 percent in July.

 Binh, who was confirmed in his post by parliament on Wednesday, said the central bank would "minimize the use of administrative intervention measures" and would maintain a tight monetary policy. He did not give further details.

 The news cheered Vietnam's drooping stock market, and the main Ho Chi Minh Stock Exchange index rose 1.17 percent to close at 396.05 on Thursday, its first rise since July 28. The market has lost 18.3 percent so far this year.

 "The governor's move helped restore confidence in most market participants, who expect the new cabinet will have measures to stabilize the economy," said Doan Tran Phuong Phi, head of the brokerage team at Ho Chi Minh City Securities.

 Parliament approved a new cabinet on Wednesday.

 Banks may have to cut lending rates sooner or later as many firms cannot afford the high costs and are not taking out fresh loans, said Deputy Director Quach Manh Hao of Thang Long Securities.

 "The markets could see positive developments in the next few sessions, and stocks may start on an upward trend in the near term," Hao said.

 Fighting inflation

 Vietnam has responded to a surge in inflation with a string of measures since February, including several increases in policy rates.

 It cut the interest rate it charges for loans in open market operations by 100 basis points to 14 percent on July 4 but some economists said that may have simply reflected liquidity flows .

 Other key rates were left steady, including the refinance rate and the discount rate, which were lifted 100 basis points at the end of April to 14 percent and 13 percent respectively.

 The government has cut its credit growth target to below 20 percent this year to curb inflation from an initial target of 23 percent, following a rise of 27.65 percent in 2010.

 Bank loans as of July 20 had risen 7.57 percent from the end of 2010, the central bank's report said.

 Binh said the central bank would keep a reasonable volume of the domestic currency in circulation and avoid any surpluses while aiming to keep interest rates at a level beneficial for depositors.

 He also said foreign reserves were "relatively large", sufficient to meet any shortage, and that the central bank would aim for a stable foreign exchange rate.

 Vietnam has added nearly $4 billion to its foreign reserves this year, the government said last month. It gave no total value for reserves, which are regarded as a state secret.

 The dong has fallen 22 percent against the dollar since the start of 2008 but has stabilised in recent months.

 Binh is a career central banker who, until his promotion, had been one of five deputy governors since early 2008. He oversaw the bank's external relations and is seen by some overseas analysts as a steady pair of hands.

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