Vietnam allows market to set repurchase rate to gauge demand

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Vietnam's central bank sought bids from the market to determine its repurchase rate Tuesday to gauge demand for funds from lenders, departing from its recent practice of setting the rate directly.

The State Bank of Vietnam received a highest bid of 8.5 percent for VND19 billion ($908,000) in an auction on Tuesday, according to e-mailed data from the central bank. The authority, which had set the rate at 10 percent on Monday while letting lenders decide how much they were willing to borrow at that rate, didn't say why it changed the auction method, how many bids it received or whether it will revert to setting the borrowing cost.

The State Bank of Vietnam uses the repurchase, discount and refinance rates to set monetary policy, and has cut them for four straight months this year to spur growth. The government pledged this month to pursue "flexible and cautious" monetary policies with "reasonable" levels of credit growth to help businesses hurt by a credit crunch.

"This is not a central bank rate cut," said Le Duc Thuy, a former governor of the central bank and now a member of the National Financial and Monetary Policy Advisory Council, which advises the prime minister. "It just means the central bank wanted to let the market decide at which rates it would borrow money from the central bank and gauge the current demand for cash," he said.

The central bank outlined how much money it wanted to lend in open-market operations, and invited lenders to decide the rates at which they were willing to borrow, Nguyen Thi Ngoc Anh, the Ho Chi Minh City-based head of fixed-income trading at Asia Commercial Bank, said by phone Tuesday.

Vietnam's one-year bonds fell for a fifth day Tuesday, pushing their yield to the highest level in almost seven weeks. The dong strengthened 0.2 percent to 20,880 per dollar as of 5:22 p.m. Tuesday in Hanoi.

Vietnam is accelerating government spending and boosting bank lending to bolster an economy that expanded 4 percent in the first quarter, the slowest pace since 2009. The government will strengthen its management of the banking system, foreign exchange and gold markets, and continue efforts to ensure the stability of lenders, according to an instruction from the prime minister to ministries earlier this month.

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