Vietnam has small chance for further rate cut in 2013: central banker

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Vietnam will find it "difficult" to cut interest rates the rest of this year after two reductions since the start of 2013 as price pressures persist, according to central bank Deputy Governor Nguyen Dong Tien.

"The pressure on inflation still remains and there are still some factors that will cause inflation to quicken toward the end of the year," Tien said in an interview in Hanoi today. "A further rate cut by the central bank is difficult. There's a small chance."

While the economy will continue to face challenges, the central bank and government have pursued policies to achieve growth of 5.5 percent and keep inflation at about 6.5 percent this year, he said. Vietnam will need to focus on other prudent policy measures to spur growth, the deputy governor said.

The country joined nations from Sri Lanka to Australia in easing monetary policy this month as authorities sought to rejuvenate an economy that grew last year at the slowest pace since 1999. Banks burdened by one of Southeast Asia's highest bad debt levels in 2012 have restrained lending, hurting business expansion and crimping consumption.

Tien forecast measures to clean up banks will contain bad debt at less than 5 percent of total loans at the end of the year, from 7.8 percent in December 2012. Prime Minister Nguyen Tan Dung may approve in June a central bank proposal to raise the caps for foreign investment in local banks, he said.

Foreign caps

Higher foreign ownership caps in lenders may be allowed on a case-by-case basis, Tien said. Vietnam currently allows each foreign investor to own as much as 20 percent of a bank, with total non-Vietnamese ownership in each bank currently capped at 30 percent.

The regulator has no plans to inject cash directly into lenders even as it prepares to set up an asset management company to acquire bad debt, the deputy governor said. Banks' liquidity conditions are "very good," he said.

While new bad debt may increase because of economic difficulties, measures to clean up banks will keep non- performing loans at acceptable levels, Tien said.

The Vietnamese dong is stable and will fluctuate less than a targeted 3 percent this year, he said. The country will consider adding to its gold reserves after it eliminates speculators of the metal in the domestic market, the deputy governor said.

Vietnam's economy expanded 5.03 percent last year. The slow restructuring of banks and state companies contributed to the International Monetary Fund's decision to cut the nation's growth forecasts for this year and 2014, Sanjay Kalra, the Hanoi-based resident representative, said in an interview on May 3.

The State Bank of Vietnam cut the refinancing rate to 7 percent from 8 percent effective May 13, while the discount rate was reduced to 5 percent from 6 percent. The rate cuts were the eighth since the start of 2012, following a reduction in March.

"The government will be consistent in pursuing its goal of maintaining macroeconomic stability," the central bank said in written answers prepared separately in response to Bloomberg's questions. Vietnam plans to cut policy rates by 2 percentage points annually and the interest-rate cap on dong deposits by 0.5 percentage point each year, it said.

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