The State Bank of Vietnam said in a separate directive that it will keep unchanged the 14-percent base rate for September.

The rate has been unchanged since June 11, and banks can lend at up to 21 percent per year.

Commercial banks are required to keep at the central bank 11 percent of their dong and dollar deposits of up to 12 months as from February 1, from 10 percent previously, while the reserve ratio for deposits longer than 12 months is 5 percent now.

“The interest rate increase this time is aimed at enabling credit institutions to reduce lending rates, sharing together with enterprises and borrowers,” the central bank said in a statement.

On Thursday, Governor Nguyen Van Giau said the requirement on compulsory reserves will not be lowered as the central bank’s monetary policy aims to help fulfill a government projection to cut inflation down to single digits by the end of 2009.

But its payment of higher interest on the reserves will partly offset the cost of raising funds by commercial banks, thus helping them cut their own rates on dong loans that would ease corporate debt burdens and help expand business.

Market rates ease

In the first reaction to the central bank’s announcement, state-run BIDV, Vietnam’s second-largest lender, said it would cut lending rates in both dong and dollars from next Monday.

The Hanoi-based unlisted bank will reduce the rates by up to 0.8 percentage points per year for dong loans and 1 percentage point per year on dollar loans, it said in a statement.

The rate cut, its third since early July, would contribute to “promoting and stabilizing the economy,” BIDV said.

Dong loans to all BIDV customers will be charged at 20 percent instead of 20.4 percent while the lending rate to businesses dealing with oil products, steel, coal and cement would be 19 percent, from 19.8 percent now.

Vinafood 2, Vietnam’s largest rice exporter, can use funds with an 18 percent interest to buy Mekong Delta paddy under the government’s purchasing scheme, from 18.5 percent now, BIDV said.

It will also charge dollar loans of less than two months at 6.5 percent per year, from 7.5 percent now.

Vietcombank, or Bank for Foreign Trade of Vietnam, also announced it will cut lending interest rates by 1.525 percent per year across the board.

Clients in essential sectors will enjoy a special annual rate of 19.475 percent.

Techcombank, which had never cut lending interest rates before, made the same move Friday afternoon and lowered its lending rates by 0.5-1 percent for dong loans and 2-2.5 percent for dollar loans.

The bank said the new rates will apply to exporters only.

On the interbank markets, overnight rates dropped to 14.27 percent Friday from 15.08 percent on Thursday after the central bank’s rate adjustment.

Rates on loans with one-week, two-week, one-month and 12-month terms also dropped.

The central bank issued measures to support banks after a government official forecast Vietnam’s economy may not reach its 7 percent growth target, which has been slashed from 8.5-9 percent previously to help contain double-digit inflation.

Vietnam’s consumer prices in August rose 28.32 percent from a year earlier, marking a further pick-up in inflation and the 10th consecutive month of double-digit price rises.

Government experts have forecast inflation in September would be 1-1.2 percent higher than August, not adjusted for seasonal patterns, lower than the 1.56 percent growth this month.

Source: TN, Reuters