The State Bank of Vietnam. The policy cuts, effective on Thursday, are aimed at accelerating growth through better availability of credit. — Photo baochinhphu.vn

The bank will cut its refinance rates from 5.5 to 5.0 per cent and its overnight electronic interbank rate from 6.0 to 5.5 per cent to support growth. Its rediscount rate will remain unchanged at 3.5 per cent.

The rate of one-month to under six-month deposits will decrease to 5 per cent, down from 5.5 per cent. The rates on term deposits of six months or longer at credit institutions will be left to their discretion based on supply and demand in the capital market.

The maximum rates on non-term and under-one-month deposits will remain unchanged at 0.5 per cent.   

The move, effective from Thursday, is the SVB's third round of rate cuts since early 2023 when it became one of the few central banks to take an expansionary stance to support economic growth. 

The central bank said inflation under control, abundant liquidity in the banking system, and stable exchange rates were favourable factors that had given room for the rate cuts.

Phạm Thế Anh, dean of the Faculty of Economics, at National Economics University, believed the rate cuts would help businesses and households have better access to credit, accelerating the country's economic growth.

"SBV's monetary policy has proved to be not only inflation-sensitive but also mindful of business recovery," said Anh.

Nguyễn Đức Khanh, head of the Analysis Department, at Pinetree Securities, said the move would incentivise commercial banks to lower their lending rates, improving their costs of capital.

"Lower costs of capital means lower lending rates to businesses and households, good news for the economy," said Khanh.

Đỗ Bảo Ngọc, deputy director of CSI Securities, said the policy cuts would have a positive impact on exchange rates, giving fresh impetus to exports.

"We believe SBV would proceed with other lending rate cuts in the next few months to provide a larger stimulus to the economy," said Ngọc.

Economist Lê Xuân Nghĩa, however, said the policy cuts would have little effect on the economy as the velocity of money has already been low, at 0.64 per annum.

He said: "If SVB wants to reduce lending rates, what it has to do is to increase the base money, rather than cutting policy rates."

SVB has injected VNĐ140 trillion (US$6 billion) into the system to absorb dollars, but Nghĩa believes the injection was insufficient to support the economy. He said it is the right time for SVB to boost the base money, given the low money supply and credit crunch. 

Other experts forecast that interest rates would cool down by between 0.5 to 2.0 percentage points this year on the back of the expansionary stance. — VNS