The State Bank of Vietnam (SBV) has slightly reduced its open market operation (OMO) interest rate for the first time in four years, in a move to bring down interest rate levels and support economic growth.

The central bank cut the rate by 25 basis points (bps) to 4.75 per cent per annum. The last cut was in March 2014, when the rate was trimmed by 50 bps to 5 per cent.

While analysts believe the move is insignificant for the market as local banks have not been keen on this channel for funding since last May, the cut comes at a time when the money market enters its peak season as demand for cash rises ahead of the Tet holiday, which is in mid-February.

The SBV will directly support part of the adjustment cost to bring down lending rates for corporates and Vietnamese people.

Previously, the OMO interest rate cut by the central bank at a time when the monetary market was tense and interbank rates were high during 2010-2011, and helped commercial lenders to lower deposit and lending rates.

The SBV announced on July 10 last year that it would cut its refinancing rate by 25 basis points to 6.25 per cent. The rediscount rate, overnight electronic interbank rate, and rate on loans to offset capital shortages in clearance between the SBV and domestic banks were slashed by the same amount.

Accordingly, banks lowered their short-term lending rates by 0.5 per cent per annum for priority sectors, while interest rates applied in credit programs to support business development were 0.5-1 per cent lower than the SBV’s ceiling interest rates.

The government aims at economic growth of 6.7 per cent this year after the local economy expanded by a higher-than-expected 6.81 per cent in 2017. Credit growth is set at 17 per cent, lower than the 18.17 per cent growth recorded last year.

VN Economic Times