State Bank of Vietnam implements third round of interest rate cuts to boost economy

Specifically, the SBV issued Decision No.950/QD-NHNN on May 23 regarding the refinancing rate, the re-discount rate, the interest rate for overnight interbank electronic payments, and the interest rate for compensatory lending. The move aims to address capital shortages for interbank offsetting payments.

Under this decision, the interest rate for overnight interbank electronic payments and compensatory lending by the SBV to credit institutions decreased from 6 per cent per annum to 5.5 per cent. The refinancing rate was lowered from 5.5 per cent per year to 5 per cent, while the re-discount rate remained unchanged at 3.5 per cent annually.

On the same day, the SBV also issued Decision No.951/QD-NHNN, addressing the maximum interest rate applicable to VND deposits held by organisations and individuals at credit institutions, as stipulated in Circular No.07/2014/TT-NHNN dated March 17, 2014.

Accordingly, the maximum interest rate for non-term and term deposits of less than one month remained unchanged at 0.5 per cent per annum. The maximum interest rate for deposits with terms from one month to less than six months decreased from 5.5 per cent to 5 per cent per year.

The maximum interest rate for VND deposits at the People's Credit Fund and microfinance institutions decreased from 6 to 5.5 per cent. For deposits with terms of six months or more, the interest rate is determined by credit institutions based on market supply and demand.

The SBV stated that global economic prospects have shown uncertainty, slow inflation reduction, and systemic banking risks emerging in some major economies, posing the danger of an economic downturn.

Domestically, there are still difficulties in terms of economic growth, although inflation is being controlled and liquidity for credit institutions and branches of foreign banks is ensured.

Therefore, in line with the National Assembly's direction, the Vietnamese government's guidance, and the Prime Minister's instructions on reducing interest rates, supporting individuals and businesses to access capital, and contributing to the recovery of production and business activities, the SBV has decided to lower the operating interest rates.

Gauging interest rate moves through expert lens Interest rate movement has been abnormal in Vietnam in the past year. Peter Verhoeven, chairman of Prometheus Asia, shared with VIR’s Nhue Man his sentiments over these key movements and how the country can become a safe haven from global headwinds.

An expert's view on interest rate movements Le Xuan Nghia, senior economist, shared his views on the possibility of interest rate movements in the months to come, and the potential impact on the banking system and the economy.