Vietnam central bank to base policy on market rates

TN News

Email Print

Legislative amendments passed Wednesday aim to have the central bank basing monetary policy more on market interest rates instead of the set base rates used now, said Governor Nguyen Van Giau.

Amendments to the law on the State Bank passed by the National Assembly on Wednesday will alter the "connotation" of the base rate, said Giau. The changes will become effective on January 1, 2011.

At the moment, the central bank publishes a base rate at the end of one month to be implemented in the following month. But it will stop announcing the base rate in advance to regulate market rates, Giau said.

Instead, the central bank will publish the rates that have been "formed on the markets by credit institutions," he said.

The central bank's base rate has remained at 8 percent since December, when it was raised from 7 percent. Standard Chartered said in a report last month that the severing this year of a link between the benchmark and market lending rates has made "the base rate much less relevant."

"In a market economy, monetary policies will be gradually implemented through the use of more and more indirect tools, such as open market operations conducted by central banks to affect short-term interest rates, and through which to affect money supply growth and economic growth," Giau said Wednesday.

The amended law also stipulated that the central bank would manage a state foreign reserve fund to help with market intervention to stabilize the currency, he said. The central bank has been managing Vietnam's foreign reserves since 1991, he added.

The National Assembly will set annual inflation targets while the Prime Minister and the central bank governor will decide on the use of tools and measures to achieve monetary policy goals, Giau said.

Legislators on Wednesday also passed amendments to the law on credit institutions, including a regulation restricting banks from lending a client more than 15 percent of their capital.

More Business News