Vietnam cuts benchmark rates 3rd time in 4 weeks

Vietnam's central bank said it will cut three benchmark dong interest rates, its third rate cut in four weeks, and lower bank reserve requirements from Friday as part of efforts to prevent an economic slowdown.

The Southeast Asian country has battled double-digit inflation and a widening trade deficit for much of the year by tightening monetary policy, but officials appear increasingly concerned the global credit crisis could drag down growth.

"The rate cut and compulsory reserves reduction are aimed at actively preventing the negative impact of the global financial crisis and economic recession," the State Bank of Viet Nam said in a statement on Thursday. It has already cut rates twice since Oct. 21.

The base rate would be cut to 11% from 12% and the central bank also lowered the compulsory reserve on banks' dong deposits by two percentage points.

The discount rate used by the central bank to buy debt from banks would be cut to 10% from 11% and the refinancing rate would drop to 12% from 13%. The central bank uses the refinancing rate to lend to banks.

Last month, Hanoi estimated the economy would grow 6.7% in 2008, down from the government's projection of annual growth as high as 9%.

In addition, banks would be required from Friday to set aside 8% on non-term dong deposits and those with terms of less than 12 months instead of 10% now, the central bank said.

The ratio for compulsory reserves on deposits with maturities of 12 months or longer would be lowered to 3% from 4%. Lower reserve requirements against banks' deposits help them cut fundraising costs and could lead to more rate cuts.

State-run BIDV, Vietnam's second-largest bank, said it was slashing dong lending rates by about 1 percentage point on Thursday in an effort to help businesses.
The central bank raised the base rate three times between February and June to contain inflation, which approached an annual rate of 30% before easing to an estimated annual growth of 26.7% in October from 27.9% in September. (Reuters)