Vietnam's central bank cut the repurchase rate after directing banks to increase lending and help businesses as the government seeks to revive the economy.
The rate, also known as the open-market operations rate, was lowered to 5.5 percent from 6 percent effective today, according to e-mailed data from the regulator.
The State Bank of Vietnam yesterday asked banks to accelerate lending and help achieve its target of 12 percent loan growth by the end of the year, according to a statement on its website. The regulator also said it will consider raising credit caps for individual banks, depending on their liquidity and loan quality.
"It is a favorable move," said Alan Pham, chief economist at VinaCapital Group in Ho Chi Minh City, of today's rate cut. "It helps reduce the cost of funds for commercial banks, thereby lowering lending rates and businesses can borrow more. The government is really anxious about boosting growth. They are concerned that growth will miss their target."
The economy expanded 4.9 percent in the first half from a year earlier. The government's full-year target of 5.5 percent growth "will be extremely difficult to meet," Do Thuc, head of the General Statistics Office, said last month.
Bank lending grew 3.5 percent as of end-June from end-2012, according to the central bank. The monetary authority lent commercial banks 7 trillion dong ($330 million) for a seven-day term today, the most this year for the same maturity, according to data compiled by Bloomberg.
Vietnam's central bank has cut its refinancing rate eight times since the beginning of 2012 to spur lending, and the legislature voted last month to lower the corporate income tax rate to help businesses. The regulator last month devalued the dong for the first time since December 2011.
The dong ended little changed at 21,223 per dollar today. The benchmark VN Index rose 1.4 percent to its highest close since June 14.