Vietnam cuts interest rates a third time to bolster economy

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Vietnam's central bank cut interest rates for the third straight month as policy makers deepen efforts to revive a struggling economy after inflation slowed to the lowest since 2010.

The State Bank of Vietnam's refinancing rate will fall to 12 percent from 13 percent effective May 28, according to a statement on the central bank's website Friday. The discount rate will be cut to 10 percent from 11 percent and deposit rate cap will be lowered to 11 percent from 12 percent, it said.

"Business and production activities are still facing many difficulties," the central bank said. The rate cuts are meant "to resolve difficulties for business and production, in line with the government's policy."

Asian nations have diverged in monetary policy responses to shield their economies from Europe's debt crisis and a growth slowdown in China as some kept rates steady or cut borrowing costs, while others tightened to limit price gains. Vietnam's economy expanded 4 percent in the first quarter, the least since 2009, and Deputy Prime Minister Nguyen Xuan Phuc said this month that helping businesses and checking inflation are urgent tasks.

"We expect inflation to moderate further this year, and with the economy likely to remain weak, further rate cuts are likely," Gareth Leather, a London-based economist at Capital Economics Ltd., said in a note after the decision.

Government resolution

The Vietnamese government asked the central bank to speed up lending-rate cuts after consumer-price gains eased, according to a resolution on the government website on May 10. Inflation was at a 21-month low of 8.34 percent in May.

The central bank on May 4 said short-term commercial lending rates will be capped at 3 percentage points above the deposit rate limit for some sectors to help reduce borrowing costs. Commercial bank lending fell 0.66 percent through April from the end of 2011, Dau Tu newspaper reported this month.

Vietnam cut fuel costs twice this month, lowering the price of the most commonly used grade of fuel by 4.6 percent.

Power tariffs will increase "in the near future," the Thanh Nien newspaper reported on May 11, citing Nguyen Tien Thoa, head of price control at the Finance Ministry.

Not performing

"The economy is not performing as it could or should," Jean-Christophe Ganz, the Zurich-based chairman of Vietnam Holding Asset Management Ltd., said before the decision. There is always a risk that cutting rates "will re-start inflation and recreate the situation we have experienced many times, but the State Bank still has some room to maneuver."

The rate cap for deposits with terms of one month or longer will drop to 11 percent from 12 percent. The interest limit for non-term deposits and those with terms of less than one month will be lowered to 3 percent from 4 percent, the central bank said.

Vietnam's central bank will give companies that are currently trading gold bars a six-month transition period from July 10 to register with the monetary authority if they want to continue with the business, according to a separate statement on its website Friday.

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