Vietnamese dong deposit interest rate caps will be reduced to 6 per cent yearly from the current 7 per cent as of today, while refinancing rates will be cut to 6.5 per cent from the current 7 per cent.— Photo dantri

HA NOI (Biz Hub) — Several key interest rates will be cut to help reduce lending rates and combat stagnant production and negative credit growth, according to the State Bank of Viet Nam.

Vietnamese dong deposit interest rate caps will be reduced to 6 per cent yearly from the current 7 per cent as of March 18, while refinancing rates will be cut to 6.5 per cent from the current 7 per cent.

Also, interest rates in US dollar deposits will be slashed from 1.25 per cent to 1 per cent yearly.

The central bank's move was previously forecast for the past week, as many commercial banks consecutively cut both their deposit and lending interest rates, not only for short-term, but also long-term deposits. Previously, banks often cut only short-term deposit rates.

After the rate cut by Ocean Bank, ACB, and Techcombank, two others, Sacombank and Eximbank, also adjusted downwards their deposit rates last week.

After a cut of 0.1-0.3 per cent on Tuesday, Sacombank's short-term deposit rates currently remain at 6.25-6.3 per cent. This was the bank's third cut in the past month.

Eximbank's highest rate on 24-month deposits is also only 8 per cent, after the cut on Wednesday. Rates on 18-month deposits inched down to 7.7 per cent, while the one-month deposit rate remains at only 5.9 per cent.

Though not making the cut in the past week, deposit rates at major State-owned commercial banks remain lower than the central bank's interest rate cap. Rates for one-year deposits at the Bank for Investment and Development of Viet Nam are only 5.8 per cent, while Vietcombank's are 5 per cent.

Despite the rate cut, industry insiders still expect that banks will remain an attractive capital mobilisation channel and depositors will turn to long-term deposits, instead of current short-term deposits.

The central bank's cut is understandable in the context of stagnant production and steady capital mobilisation, while credit growth was negative 1.66 per cent as of February 20, 2014. With this situation, many banks that face capital redundancy may rush to buy Government backed bond.

According to financial experts, banks can further decrease lending rates by 1 to 2 per cent per year. — VNS