Vietnamese officials have announced plans to cut refinancing rates in order to support businesses. This is the latest in a series of measures announced to help boost the country’s floundering economy. The rate will be reduced from the current seven percent to 6.5 percent on March 18, according to Le Duc Tho, Chief Administrator at the State Bank of Vietnam.
The idea is to stimulate lending to business, in order to support more sustainable growth. The refinancing rate is at the level at which the State Bank loans money to other Vietnamese financial institutions, and by reducing interest Le is hoping to boost the flow of capital into the economy. It is a direct response to Prime Minister Nguyen Tan Dung’s request that the central bank step up its efforts to lower lending rates.
This is the latest in a series of measures announced to help boost the country’s floundering economy
Le will also be cutting rediscount rates to five percent, after lowering them to six percent at the end of March. “The government is more active in pushing for credit and growth,” Le Dang Doanh, a former advisor to the Prime Minister, told the WSJ.
The World Bank has recently announced it expects the Vietnamese economy to grow 5.4 percent this year, much lower than the government’s original target of 5.8 percent. Weak domestic demand has negatively impacted inflation expectations, and credit only grew around 1.4 percent in the first quarter.
The local government is aiming to stimulate demand, particularly in the property market, as a number of new property developments remain unsold as access to credit remains limited. According to its website, the State Bank will be making 30trn dong, around $1.44bn, available as affordable credit to homebuyers.
Though the economy grew 4.89 percent in the first quarter- more than the same period last year- it is still significantly slower than the 5.44 percent expansion recorded in the last quarter of 2013. However, the number of business closures has soared by 12 percent in February. As a result the government has revised growth estimates to 5.5 percent for 2014.
