Vietnamese Central Bank to Keep Interest Rate Unchanged Amid Lending Push

Vietnam’s central bank said it will keep its benchmark interest rate unchanged for a ninth consecutive month in September as it strives to boost lending.

The so-called base rate will stay at 8 percent from Sept. 1, the State Bank of Vietnam said in a statement on its website today. The benchmark was raised from 7 percent on Dec. 1. The refinancing and discount rates will also be held at 8 percent and 6 percent respectively.

The government has been urging banks to cut credit costs to bolster the economy as it targets 25 percent lending growth and 6.5 percent economic expansion this year, even as inflation has held above 8 percent for most of 2010. The central bank allowed lenders to set their own rates for medium- to long-term loans in February, scrapping a cap linked to the benchmark.

“The base rate will stay at 8 percent until the end of the year,” Alan Pham, Ho Chi Minh City-based chief economist at VinaSecurities Joint-Stock Co., said before the announcement. Following the elimination of the cap, the base rate “is irrelevant and nobody cares what it is,” Pham said.

Commercial lending rates ranged from 12 percent to 15 percent in July, the central bank said in August. It previously said it will seek to further cut the costs over the rest of 2010 through measures including increased money supply. Credit growth reached 12.97 percent by July 31 from the end of last year.

Dong Devaluation

The State Bank of Vietnam lowered the dong’s reference exchange rate by 2 percent last week, citing the need to narrow the trade deficit. The shortfall was $900 million this month from a revised $978 million in July, a report showed yesterday. For the eight months through August, the gap was $8.16 billion.

The dong traded at 19,490 per dollar at 4:18 p.m., down from 19,099 before the devaluation was announced. The Ho Chi Minh City Stock Exchange’s VN Index slid 2.4 percent to 423.89, after entering a so-called bear market yesterday following a drop of 21 percent since May 6.

“With the recent devaluation of 2 percent, inflation would likely pick up,” Pham said. “So banks have to keep up their lending rates or even raise them, to keep their real rates positive.”

Inflation cooled for a fifth month in August, climbing 8.18 percent from a year earlier compared with 8.19 percent in July, according to data released this week.

Vietnam’s gross domestic product expanded 6.4 percent in the second quarter, after advancing 5.8 percent in the first three months of the year. Prime Minister Nguyen Tan Dung said in June the economy may grow as much as 7 percent in 2010.

The Southeast Asian nation is preparing a “rapid and sustainable” development strategy for 2011 to 2020 that will lead to average GDP growth of 7 percent to 8 percent a year for the period, the prime minister said last week.