Cbank to cut deposit rate ceiling to 6%

Cbank to cut deposit rate ceiling to 6%

The State Bank of Vietnam (SBV) will lower the deposit interest rate ceiling by one percentage point this coming week as current macroeconomic conditions have allowed it to do so, SBV governor Nguyen Van Binh said Friday during a conference.

The ceiling will be cut to six percent from the previous seven percent on Monday, Binh added.

First introduced in March 2011, the deposit interest rate ceiling aims at putting a cap on deposit interest so that local commercial banks cannot raise their rates to lure depositors in a so-called “interest rate race” that can destabilize the financial market.

The rate was capped at 14 percent at that time before falling gradually to around seven percent in mid-2013.

The central bank will also adopt a new interest rate level by adjusting many key policy rates next week, as inflation is expected to hover around six percent for the whole year, the governor said at the meeting in the Mekong Delta city of Can Tho.

It will cut refinancing interest and U.S dollar deposit rates from seven percent to 6.5 percent and from 1.25 percent to 1 percent, respectively, the SBV said on its website.

All the cuts will be applicable on March 17, according to the website.

The reductions were somewhat foreseen as commercial banks have continuously lowered deposit and lending rates for over a week.

Slashing deposit rates helps banks save costs while clipping lending interest is expected to boost loans to the local economy.

The moves began right after Tet (Vietnam’s Lunar New Year, ending early February) at many joint-stock commercial banks, with cuts, as noted by the SBV, applicable mainly to short-term deposits (1-2 months long).

The trend has grown in recent days, as many banks have started offering interest reductions to long term deposits (over-12-month loans).

The central bank is committed to setting aside about VND8 trillion (US$380 million) preferential credit meant for those rice traders who buy grains from farmers during peak harvest seasons under a state-backed rice storage program, designed to keep rice prices from falling, the governor said.

However, local media have reported that rice prices in the Mekong Delta, considered the country’s rice bowl, have dropped to some VND3,800-4,000 per kilogram, a record low, given the high volume of harvested rice.

In 2012, Vietnamese farmers broke even at VND4,900-5,200 per kilogram, according to statistics.

Governor Binh said at the Can Tho conference that the SBV will recommend commercial banks to slash short-term lending interest rates for agriculture and rural development projects to seven percent from the previous ten percent, without elaborating. Favorable procedures will also be put in place to encourage new and effective agro-production models, aquaculture and seafood processing industries, and the application of high technology in agricultural production, he added.

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