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Vietnam Keeps Key Rate at 14%, Resisting Calls to Cut (Update3)
By Nguyen Kieu Giang and Nguyen Dieu Tu Uyen
Aug. 29 (Bloomberg) -- Vietnam's central bank kept interest rates unchanged to slow inflation from 28.3 percent, resisting calls to cut lending costs from the highest in Asia.
The State Bank of Vietnam will maintain the key rate at 14 percent for the next month ``to pursue its tight monetary policy in order to help curb inflation, and support production,'' according to a statement on the bank's Web site today.
``Keeping interest rates at this level shows that the government is ready to sacrifice economic growth and prioritize fighting inflation,'' said Huynh Thi Thanh Van, head of the capital markets division at Sacombank Securities Co. in Ho Chi Minh City.
Policy makers have been under pressure from companies to reduce borrowing costs, after three increases this year. Signs of moderating food and energy prices suggest the Southeast Asian nation's inflation, the fastest in Asia, may peak next month, according to JPMorgan Chase & Co. and HSBC Holdings Plc.
The government has cut this year's economic growth target to 7 percent from 9 percent as it fights inflation. Expansion was 8.5 percent last year, the fastest in more than a decade.
Representatives of Vietnam's associations for furniture, coffee and cacao, cashew nuts, fisheries, and footwear said in July that their members have serious shortages of cash to buy materials needed to keep production running.
`More Time'
Vietnam raised the benchmark rate from 12 percent on June 11. It also increased the refinancing rate to 15 percent, and the discount rate to 13 percent.
``We've seen some signs that inflation is slowing down, but it hasn't been that long since they last raised the base rate,'' said Kevin Snowball, Ho Chi Minh City-based chief executive of PXP Vietnam Asset Management Ltd. ``They need to give that more time to have an impact.''
Malaysia's central bank on Aug. 25 kept its benchmark interest rate unchanged to avoid worsening an economic slowdown. Thailand, Indonesia, India and the Philippines have all increased interest rates this year.
In a separate statement, the State Bank of Vietnam also said it will raise the interest rate it pays to banks on compulsory reserves to 3.6 percent from 1.2 percent.
The central bank lifted the reserve requirement to 11 percent from 10 percent on Jan. 16 and doesn't plan to lower it for the time being, Governor Nguyen Van Giau said yesterday.
Fund Shortage
Higher interest on these reserves will ``enable lenders to lower lending rates to help companies and borrowers boost production and business,'' today's statement said.
``This is really good news for banks as it helps us to reduce our lending interest rates and so it will be easier for us make loans,'' said Le Dao Nguyen, deputy chief executive officer in Hanoi at Bank for Investment & Development of Vietnam.
BIDV, the country's second-biggest lender by assets, today said it will reduce lending rates by as much as 0.8 percentage point to as low as 18 percent, according to an e-mailed statement from the bank.
Vietnam's four biggest lenders last month all cut lending rates from as high as 21 percent in response to pressure to ease a fund shortage.
Year-on-year inflation accelerated from 27 percent in July, and hasn't slowed since January 2007.
Inflation may peak in September at about 29 percent and lose pace in coming months as the economy slows, according to JPMorgan. Gains in consumer prices will probably slow after reaching a high of 28.4 percent next month, HSBC says.
A reduction of gasoline prices this week also spurred speculation that inflation may be close to peaking. Vietnam on Aug. 27 allowed retailers to lower gasoline prices for a second time this month, reducing costs by more than 5 percent because of falling oil prices.
To contact the reporters on this story: Nguyen Kieu Giang in Hanoi at giang1@bloomberg.net; Nguyen Dieu Tu Uyen in Hanoi at uyen1@bloomberg.net.
Last Updated: August 29, 2008 05:51 EDT
