Vietnam's slowing inflation makes room for rate cut: economist

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Vietnam's slowing inflation rate gives the central bank the option of cutting its interest rate ceiling on deposits, according to a government economist.

The ceiling could be lowered from 14 percent to 13 percent with monthly inflation in October estimated to dip below 0.5 percent in October, Tran Hoang Ngan of the National Advisory Council for Financial and Monetary Policies said in an interview published in Monday's Tuoi Tre newspaper.

Another cut of one percentage point could be considered if inflation continues to slow, he said.

"It's necessary to bring the deposit cap down in order to speed up the process of cutting lending rates," Ngan said. "Besides the government has set a target of keeping inflation at single-digit levels, so interest rates should be managed in line with that inflation target," he said.

If inflation can be controlled within the target range, a deposit rate of 10 percent will be enough to ensure profits for depositors, Ngan said.

When banks offer high rates to depositors, businesses eventually pass the high borrowing costs along to end users, he said.

Nghia said he was not worried about falling deposits at local banks after the central bank ordered all commercial banks to abide strictly by the 14 percent ceiling.

"Deposits are on the decline, but it's only temporary and not really significant," he said. "Credit has fallen too and it means high interest rates are a burden for businesses and should be brought down."

Local banks offered dong loans at between 17 and 21 percent to manufacturers, exporters and companies in agricultural sectors, the central bank said in a report last Friday. For non-production companies, interest rates could reach 25 percent a year.

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